What do franchisors look for in franchisees?
Franchisors understand that one bad apple can ruin the entire cart. A good franchisor will develop a profile of the ideal franchisee upfront so that they know what they’re looking for.
This will also help them properly evaluate each candidate instead of just accepting the guy who puts money on the table, particularly in the early stages of the franchise. This means you’re likely to go through an arduous process of applications, interviews, on-the-job trials, and final interviews.
In addition, you should have enough unencumbered capital to buy at least 50% of the business, otherwise the financing costs are going to be too restrictive.
Greg Nathan, who is the guru of franchising in Australia and conducted research in 2013 on 3 000 franchisees, found that the best predictors for franchise performance are proactivity, leadership potential, ability to sell, ability to have good family support and the ability to have good business acumen.
Apart from these generic characteristics, you should look carefully at what you would need to run that particular business. Very often it’s the business person who runs the franchise and not a person who has the technical skills associated with that industry. – Elana Koral
How much freedom do franchisees have?
Franchising is often referred to as ‘intrapreneurship’ rather than ‘entrepreneurship’. Intrapreneurship means the franchisor creates a lot of the rules, systems and processes that franchisees have to follow, unlike an entrepreneur who’d do what they want in their way.
New ideas, wanting to change the shop, or wanting to change the way things are done doesn’t really work in a franchise model. There is freedom, but less so than you would have in a small business. – Ethel Nyembe
Buying a franchise
I’ve identified a franchise I’d like to purchase from an existing franchisee. What are the typical contract restrictions involved?
The franchisor has the first right to approve incoming buyers that the franchisee wants to sell to. You may have to go through the entire recruitment and selection process that the original franchisee had to go through.
In some cases, the franchisor may even want to take over the franchise themselves, and put in their own management team when the franchisee terminates. This is very much dependent on each and every franchisor and the agreement specifications. – Elana Koral