Exploring Franchising? What To Expect
If you have never purchased a franchise business before, you may not realize that there is a process followed whether acquiring a new territory or buying an existing location up for resale. It is similar to job interviewing in the respect that you, the candidate, seek the best opportunity for yourself and the franchise brand (franchisor) has its own criteria for an ideal franchisee.
Owning a franchise is a strategic partnership with you and the franchisor having similar goals and parallel thinking. But the key thing to realize is that you cannot actually “buy” the franchise until it is awarded to you. Initially you must “qualify” by meeting the franchisor requirements which are set based on their experience of who will make an appropriate franchisee and what qualifications are needed to succeed. This may seem arrogant to some but wouldn’t it be better to know that the brand under consideration is made up of a network of successful franchisees that initially qualified rather than work with a franchisor that will sign an agreement with anyone who pays them the franchise fee. When you succeed, the brand succeeds.
There is a multitude of information on the internet but nowhere is there a site that will outline all franchisor qualifications to prospective franchisees. You may find some of the requirements and other information on the brand website or another franchising site but unless you complete the concept’s questionnaire and subsequently speak with them, you will not have the full picture.
An alternative to speaking directly with each franchisor in order to find out if you are qualified, is to first obtain a broader view from someone like me, a franchisee recruiter who has access to the requirements of 375+ franchisors. On occasion, when I initially meet or speak with a potential franchisee, they ask me to send them a list of franchises not knowing that we first need to discuss their interests, skill set, financial means, type of ownership preferred, desired business location and timeframe. Only then can we determine what options are the best fit.
Here are principal qualifications franchisors seek:
Do you have enough fiscal means?
○ Minimum liquid capital needed-funds needed to start the business (sometimes includes some working capital)
○ Minimum personal net worth (assets less liabilities) and/or specified months of working capital
- Ownership Model
What would you rather be?”
○ Owner/Operator-manage and work in the business full-time
○ Semi Absentee-take on a more passive role to “manage the Manager”
Some franchise concepts only allow owner/operators while others may allow you to keep your current position or run other businesses.
○ Previous business ownership?
○ Sales, marketing, operations and/or management experience?
○ History of dealing and interacting with people?
○ A franchisor will want to work with candidates currently exploring opportunities in order to be able to ascertain a territory or resale
location is available in the potential franchisee’s desired location. Twelve months from now that area may be sold out!
○ When do you want to start? As soon as you find the right opportunity or is your goal 6-9months down the road? Maybe you don’t even
know if it is an option for you and are just kicking the tires at this point.
There are others less frequently obliged and concept dependent:
• Necesary to be a U.S. citizen (no green card or resident aliens accepted)
• Excellent English skills required
• Will not award the franchise to E2 or EB-5 visa candidates
Again, this may seem harsh to some but it is based on the brands’ years of experience and history. Knowing that in their industry, the franchisee will fail if they don’t have excellent verbal skills and that a non-citizen may have to leave the country and business if their situation should change. As for visa candidates, the time spent working with the candidate could be for naught if the visa is not awarded. Timing is also tricky with the potential franchisee making a move (many times with family) from another part of the world.
After qualification, the next step is to move forward to the introductory conversation with a brand Franchise Development executive. Each concept has a different number of phases in their “discovery” process and their order of undertaking may differ from brand to brand. The first call will set expectations for future calls. There may be webinars that you watch together or through their portal explaining key processes or marketing support. Certainly once you are engaged, they will want you to complete an application and will send you a franchise disclosure document (FDD) which will outline the concept in detail. Another call will be set up after you have had time to review the FDD to discuss it and answer any questions.
At a point during your due diligence process, you will have the chance to speak with other franchisees to validate the information received. In the FDD there will be a list of franchisees from which to choose and top franchisors will provide guidance with respect to these calls. This is a valuable source of information providing unfiltered opinions about the franchise system and there could be some negative feedback. There is no harm in knowing the thoughts of an unsuccessful franchisee but you will learn invaluable information from the successful ones.
Many franchisors hold a Discovery Day at headquarters to culminate their exploratory sessions where they invite financially qualified candidates who have gone through every phase of their process. Some even pay for a portion of the travel costs. This is chance to see the whole operation-get a feel for the culture, meet key personnel including the CEO, receive a tour of the facility, spend time with certain departments and perhaps visit a local franchisee location or two. Going back to the job interview analogy, as you are amassing information about them they will be checking you out for the last time before they award you the franchise. Within a couple of days, your franchise executive will tell you if you have been approved. At that point, it is decision time.