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When Net Worth Is Important to a Franchisor and How To Overcome It

Written by: Michael Hemenway

Article Overview: A prospective franchisee’s application will depend considerably on his net worth. While it is a must, real good franchisor make an exception for the candidates who have other skills such as experience in the field of management or clean credit history. Franchisors that put net worth as the first criteria of selection often end up taking in bad candidates.

When Net Worth Is Important to a Franchisor and How To Overcome It

Net worth is, to speak clearly, your assets minus your liabilities. This is perhaps the most important factor on which your entry in the franchising business depends. As you are checking out a franchisor, the franchisor will also check you out as well. Your franchisor is putting its hard earned brand-name in your hands, so he has every right to know whether you are perfect for him or not. And your financial condition definitely comes as a big factor, hence, your net worth will come into question the moment you want to become a franchisee.

The UFOC and other documents from the franchisor will spell out how much net worth you will need for starting a franchise under it. You are supposed to have that money in hand when talking to the franchisor. But there are certain things that a franchisor will look into besides your net worth.

For example, most franchisors are looking for people with management backgrounds or some experience. It also prefers applicants with excellent “people-skills”. So, all your customer-handling expertise as well as your relations with your co-workers will come under scrutiny when you apply for a franchising business. If it is very good, the franchisor may overlook your net worth. But you will have to provide all sources of financial help that you are planning to take. It can be SBA-approved loans or loans from your family members and friends. Another thing that may impress them is a good credit history. If there’s no bankruptcy or other financial disasters in your past, the franchisor may overlook your “not-so-adequate” net worth.

Another point where a franchisor may overlook your net worth is when your partner is a steady earner. In that case, you won’t have to bother about the household finance (something that a franchisee is supposed to include in his start-up cost). So, even if you have just the net worth or little below it, the franchisor may approve you as its franchisee.

But, when you are a novice and do not have adequate experience of managing a business, then your net worth may become the first criteria for choosing you. Moreover, you must have some other characteristics that will make the franchisors trust you with their name. For instance, if you are really hard-working and ready to devote quite an amount of time to the business, then the franchisor may consider you. This is especially true for franchising concepts that need a good amount of physical labor.

Another thing that may help you is willingness to learn the franchising system and following it. In conclusion, it can be said that beware of those franchisors whose only criteria of granting franchises is the net worth of the applicants. Most of the time, they turn out to be undependable ones who are more interested in making a sale than developing a franchisee. They often sell their businesses to undeserving candidates who happen to satisfy their financial requirements. As a result, the whole chain suffers due to these incompetent franchisees.

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  Before you Buy: How to Interview Franchisees to Get the Real Scoop

Article Tags: adequate experience, brand name, bu, co workers, credit history, family members, financial disasters, financial help, franchisee, franchising business, franchisor, franchisors, household finance, liabilities, management backgrounds, net worth, novice, sba, scrutiny, ufoc



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