Choosing to franchise your business involves a lot of different commercial decisions. One of these is finding the right people to run the different branches of your franchises. These people are known as franchisees. Choosing the right franchisees is crucial in ensuring that your business’ reputation is upheld and that your company continues to grow. This article provides a few tips for you, a franchisor, to choose franchisees that are right for your business

1. Develop a Recruitment Process

As with any commercial exchange, you should be seeking people that you can build a long-term business relationship with. However, it may be difficult to conclude whether an interested party is a good match for your franchise business if you have limited information. A recruitment process can determine whether you can trust an interested party to operate the franchise business.  

Screening Process

Whether the interested party is a right fit may be determined through a screening process. It may include the requirements to complete:

  • an application form;
  • a one-on-one interview; and
  • a test day at your business.

It is important that the interested party is:

  • motivated and interested in the franchise system;
  • willing to commit to the franchise for the entire term and not only interested in selling the business; and
  • open to comments and feedback.

2. Consider Prior Experience

Whether an interested party is capable of operating the franchise may depend on their previous experiences. Considering their prior experiences helps determine the capability of an interested party to run the business. 

Business Experience

Franchisees enter franchise businesses for a multitude of reasons. Therefore, not all franchisees have previously run a business. However, this is not necessarily a negative attribute. The interested party may be more dependent on your instructions and subsequently may be more willing to enforce your standards.

In comparison, parties that have previously owned businesses may be more willing to take risks and operate outside of the franchise standards. Of course, this differs for each interested party and you should assess this idea in light of their motivation to join your business. However, be wary of parties looking to start their own business in the future as this may put your business’ confidential information and intellectual property at risk.

Qualifications

An interested party’s relevant skill set and qualifications in operating a franchise business can be assessed by looking at their prior experiences. Therefore, through analysing qualifications, you can determine:

  • whether other workers are necessary; and
  • the amount of training and investment that will be needed for a particular interested party.

3. Undertake Financial Due Diligence

Assessing whether an interested party is financially capable of taking on the franchise business is important. The due diligence process will also help you build trust in the franchisee before signing the franchise agreement.

Operating Costs

You should look at your operational costs to determine the ideal level of unborrowed capital or financing necessary for your business. Subsequently, you can use this information to assess whether the interested party is financially stable to commit to the franchise.

Asset Assessment

Further, you can request details of the interested party’s existing assets. You may also wish to have the option to register a security interest. A security interest allows you to access a franchisee’s property if they do not meet the obligations set out in the agreement. Therefore, with knowledge of the interested party’s existing assets, you will have a better idea of the potential financial risk if the franchisee is not able to comply with the franchise agreement.

4. Develop a Comprehensive Training Module

The quality and comprehensiveness of the initial training is the primary determinant of a franchisee’s compliance and success. You will have better results if you train the franchisee from the outset when they are fresh and keen to learn.

Treat the initial induction training as seriously as possible. McDonald’s requires prospective franchisees to undergo nine months of assessment and training before even being considered for a franchise. Your system may not need to be as rigorous, but it must be comprehensive. Furthermore, it should test the franchisee to ensure that they have understood their training.

Key Takeaways

You can significantly reduce (or eliminate) the risk of non-complying and problematic franchisees who will damage your brand by carefully screening franchisees upfront.

In addition, by intensively training franchisees at the outset, you can ensure that they will get off to the best possible start in your system and, ultimately, succeed. If you have any questions or need advice when choosing franchisees, contact LegalVision’s franchise lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Jonathan Muncey

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