What matters most to the franchisors about the potential franchisee
What matters most to the franchisors about the potential franchisee
Following are the 6 required pieces of information in the typical order of importance to the franchise company. Every franchise company wants/needs this information before you proceed. This will tell them if you are a candidate they are willing to spend some time with or not.
Behind information door number 1---"How much liquid cash do you have?" Without being crass, this is the most important ‘pre-qualifying’ piece of information and every franchise company wants to know. They may not ask it first (but most will) because everything else is second after this. Franchise companies have established the minimum amount of liquid cash investment that each franchisee must have and they need to know right off—do you fit that or not? When you consider this a moment it should make sense this is the key piece to the puzzle. If you do not have enough money to afford the franchise then nothing else really matters. It may be a dream to own this company but if you do not have the money required, you will need to adjust your interests.
Number 2 is: "How is your credit?" This is important for a couple of very critical reasons. Reason 1-if you have to borrow money to purchase the franchise (many will require this) and your credit rating will not allow it; well you can figure out what that means. Reason 2—once you have your franchise open you may need to open credit with suppliers, advertisers and a land lord if your franchise requires a physical location. Credit ratings impact your insurance costs and who knows what else, but you need at a very minimum a ‘good’ credit rating, excellent is better. You are allowed to check your credit report 1 time per year, we highly recommend you do this.
Number 3 is; "What is your net worth?" Franchise companies typically establish a net worth requirement for their ‘ideal’ candidate. Net worth has some variations in the franchise world, however in general to determine your net worth you would add up all of your assets and then subtract all your liabilities (debts). If you have more assets than liabilities you will have a positive net worth. This is generally considered to make certain that the franchisee has a strong enough net worth to support themselves during the start up phase of the business.
Very few business opportunities start with a positive cash flow immediately so the franchise company wants to make certain that a franchisee is able to support themselves as the business builds. While these are all fairly objective requirements, they really are designed as much to protect a franchisee as a franchisor. It is important to remember our opening thesis: a successful franchisor does not want someone coming into their system that has a higher likelihood for failure because they could not afford to hang in while the business builds. Sometimes there is this thought that since it is a franchise it should start making money the day the doors open---not so. Be prepared to sustain yourself for awhile as your business gains traction and income.
We now hit the non-financial requirements and I think they will make sense to you. Number 4 is—"What territory are you considering?" One of the many solid reasons to consider a franchise is that they typically deal in territories. You cannot limit the competitors that move in, but you do want to make certain that you will not compete with your own company. For this reason franchise companies typically will have assigned territories. The main question here; is the territory you want available? This is a very real issue and must be considered. It is good to go into this process with a few options if possible. Sometimes the area that you want is not available but a neighboring area would be. Now that you know this possibility may exist, you can prepare yourself for it.
Number 5 is; "What is your time frame?" We hear from many folks that are just beginning their franchise search but they are a year or more away from being able to make a decision. We find this a good time to work with our clients to educate them about the franchise business models and really drill down to determine the types of opportunities they may be interested in. Naturally—one does not start looking for a job today that they cannot accept in a year. The reason is clear—the job will not be there in a year. The same is typically true of a franchise opportunity. If you find the perfect company and the perfect territory and then you say to them—“we love everything, we’ll get back to you in 12 months to move forward”—well, you will be talking to yourself. Franchise opportunities, like jobs and homes, are dynamic; here today gone tomorrow. Be upfront with this with your franchise consultant about your time frame, take the time to become franchise experts; just don’t set your sights on one particular franchise before you are in a position to make a decision.
We now come to number 6. "What is your work experience and what is your goal in owning a franchise?" This one may be the most obvious, but there is more here than one might think. Yes, a franchisor wants to see if your background will compliment their required skills, but that in itself does not preclude an applicant. In other words; just because your last career was in sales does not mean that you have to focus on a franchise that has outside sales required as a core success factor. Conversely, because your career in the past was in manufacturing, you are not limited to that arena. Franchise companies are quite welcoming to folks that have a passion or desire to succeed in a new arena. In fact many franchises actually prefer folks that do not have their specific business background. This is pretty logical when considered; franchises have an established business model. The most successful franchisees (in general) are those that can and do follow the format. Sometimes human nature may try to take over if one has experience in the core franchise business. In other words, if you come in to the equation with ‘learned’ responses from a previous company, the franchise company may likely operate differently. Now they must ‘un-train’ your previous experience before they can go forward. Of course,there are some franchises so specific that they must be approached from the experience side.
These 6 factors are important to all franchise companies. The order of importance will change in some cases. It should also be noted that these are not the only important questions; they are simply the areas that we would call pre-qualification. As part of the process of learning about the franchise world, we believe knowing these 6 pieces of information as they pertain to your individual qualification will better prepare the potential franchisee. In my opinion; knowing the expectations will help a potential franchisee understand why certain questions are being asked and how the answers will be considered. You are now armed not only with the six most important questions, but now you know why they are important. We hope this will serve you well as you proceed through your franchise selection process.
What matters most to the franchisors about the potential franchisee - To learn more about this author, visit Mike Callahan's Website.
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As we spend time with folks considering a franchise opportunity we have come to realize many approach seeking a franchise opportunity as if they are in a job interview. Taking the assumptive approach that-“we have decided we want a(n) ABCDEFGH Company let’s get this going,” is not necessarily a realistic attitude. The truth is-before you head down that path your consultant should be working with you to explain there are 6 key pieces of information that every franchise company wants to know about you. We often hear that franchisors will take anyone that has the money but that is simply naiveté thinking. Franchises succeed ONLY if their franchisees succeed. They know what they want in a franchisee and so should you or your consultant. If you are working with a consultant, the franchise companies will want to know these facts before an introduction call is scheduled. If you have contacted a franchisor directly they asked you these questions in short order, because they determine whether you get to pass the figurative ‘Go’ of the franchise company.
Following are the 6 required pieces of information in the typical order of importance to the franchise company. Every franchise company wants/needs this information before you proceed. This will tell them if you are a candidate they are willing to spend some time with or not.
Behind information door number 1---"How much liquid cash do you have?" Without being crass, this is the most important ‘pre-qualifying’ piece of information and every franchise company wants to know. They may not ask it first (but most will) because everything else is second after this. Franchise companies have established the minimum amount of liquid cash investment that each franchisee must have and they need to know right off—do you fit that or not? When you consider this a moment it should make sense this is the key piece to the puzzle. If you do not have enough money to afford the franchise then nothing else really matters. It may be a dream to own this company but if you do not have the money required, you will need to adjust your interests.
Number 2 is: "How is your credit?" This is important for a couple of very critical reasons. Reason 1-if you have to borrow money to purchase the franchise (many will require this) and your credit rating will not allow it; well you can figure out what that means. Reason 2—once you have your franchise open you may need to open credit with suppliers, advertisers and a land lord if your franchise requires a physical location. Credit ratings impact your insurance costs and who knows what else, but you need at a very minimum a ‘good’ credit rating, excellent is better. You are allowed to check your credit report 1 time per year, we highly recommend you do this.
Number 3 is; "What is your net worth?" Franchise companies typically establish a net worth requirement for their ‘ideal’ candidate. Net worth has some variations in the franchise world, however in general to determine your net worth you would add up all of your assets and then subtract all your liabilities (debts). If you have more assets than liabilities you will have a positive net worth. This is generally considered to make certain that the franchisee has a strong enough net worth to support themselves during the start up phase of the business.
Very few business opportunities start with a positive cash flow immediately so the franchise company wants to make certain that a franchisee is able to support themselves as the business builds. While these are all fairly objective requirements, they really are designed as much to protect a franchisee as a franchisor. It is important to remember our opening thesis: a successful franchisor does not want someone coming into their system that has a higher likelihood for failure because they could not afford to hang in while the business builds. Sometimes there is this thought that since it is a franchise it should start making money the day the doors open---not so. Be prepared to sustain yourself for awhile as your business gains traction and income.
We now hit the non-financial requirements and I think they will make sense to you. Number 4 is—"What territory are you considering?" One of the many solid reasons to consider a franchise is that they typically deal in territories. You cannot limit the competitors that move in, but you do want to make certain that you will not compete with your own company. For this reason franchise companies typically will have assigned territories. The main question here; is the territory you want available? This is a very real issue and must be considered. It is good to go into this process with a few options if possible. Sometimes the area that you want is not available but a neighboring area would be. Now that you know this possibility may exist, you can prepare yourself for it.
Number 5 is; "What is your time frame?" We hear from many folks that are just beginning their franchise search but they are a year or more away from being able to make a decision. We find this a good time to work with our clients to educate them about the franchise business models and really drill down to determine the types of opportunities they may be interested in. Naturally—one does not start looking for a job today that they cannot accept in a year. The reason is clear—the job will not be there in a year. The same is typically true of a franchise opportunity. If you find the perfect company and the perfect territory and then you say to them—“we love everything, we’ll get back to you in 12 months to move forward”—well, you will be talking to yourself. Franchise opportunities, like jobs and homes, are dynamic; here today gone tomorrow. Be upfront with this with your franchise consultant about your time frame, take the time to become franchise experts; just don’t set your sights on one particular franchise before you are in a position to make a decision.
We now come to number 6. "What is your work experience and what is your goal in owning a franchise?" This one may be the most obvious, but there is more here than one might think. Yes, a franchisor wants to see if your background will compliment their required skills, but that in itself does not preclude an applicant. In other words; just because your last career was in sales does not mean that you have to focus on a franchise that has outside sales required as a core success factor. Conversely, because your career in the past was in manufacturing, you are not limited to that arena. Franchise companies are quite welcoming to folks that have a passion or desire to succeed in a new arena. In fact many franchises actually prefer folks that do not have their specific business background. This is pretty logical when considered; franchises have an established business model. The most successful franchisees (in general) are those that can and do follow the format. Sometimes human nature may try to take over if one has experience in the core franchise business. In other words, if you come in to the equation with ‘learned’ responses from a previous company, the franchise company may likely operate differently. Now they must ‘un-train’ your previous experience before they can go forward. Of course,there are some franchises so specific that they must be approached from the experience side.
These 6 factors are important to all franchise companies. The order of importance will change in some cases. It should also be noted that these are not the only important questions; they are simply the areas that we would call pre-qualification. As part of the process of learning about the franchise world, we believe knowing these 6 pieces of information as they pertain to your individual qualification will better prepare the potential franchisee. In my opinion; knowing the expectations will help a potential franchisee understand why certain questions are being asked and how the answers will be considered. You are now armed not only with the six most important questions, but now you know why they are important. We hope this will serve you well as you proceed through your franchise selection process.
What matters most to the franchisors about the potential franchisee - To learn more about this author, visit Mike Callahan's Website.
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Anne BarrAnne Barr has over 26 years experience in sales and marketing, six years as a franchisee. She has assisted over 367 business owners and purchasers to achieve their goals in career change, transition and exit strategy. She holds the designation of Certified Franchise Executive from the International Franchise Association, Certified Business Intermediary from the International Business Brokers Association and Board Certified Broker from the Texas Association of Business Brokers. Anne is active in professional organizations, networking groups and volunteers for non-profit entities. As owner/operator of four successful businesses, Anne has proven people skills and enjoys helping clients find the right "fit" in business ownership. Visit www.FranchiseOpportunitySpecialist.com for more information about me and my company. - Visit Anne Barr's Website |
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