What Do Franchisors Look for in a Franchisee?

Karen Axelton
Mon, 10 Aug 2009 00:00:00 +0000

When considering potential franchisees, what traits do franchisors look for? “Many of the qualities will vary according to the specifics of each franchise offering,” says Edward Kushell, president of The Franchise Consulting Group, a consulting firm specializing in developing growth strategies for franchise clients.

For example, he says, “a real estate franchise [might] require excellent sales skills; an automotive repair business might require certain mechanical abilities; a beauty salon might require creative and customer satisfaction skills.”

Beyond these industry-specific traits, however, there are three key characteristics that all franchisors look for.

Characteristics of great franchisees

1. Adequate capital

For most franchisors, having adequate capital is the first hurdle a franchisee must pass before other factors are even considered. “[Franchisees need] the ability to provide the necessary initial capital, plus a commitment for contingency funds. Things never go as planned,” says Kushell.

David McKinnon, CEO of Service Brands International, franchisor of concepts including Molly Maid, Mr. Handyman, and 1-800-DryClean, puts it this way: “If the space shuttle leaves the launch pad with 80% of the fuel required to get to space, it will travel the first 80% just as quick and just as fast [as if it had 100% of the fuel]. But the remaining balance of the trip will end in a total failure of the entire mission, as there are no refueling stations on the way to space.

“So it is in business,” McKinnon continues. “If you don't have all the capital required to get to break-even, the first part of launching your business will feel like everything is going well. However, when you run out of capital, the banks won't lend you any more, because you are now at the highest point of risk.”

Just as important as having adequate capital is knowing how to manage that capital. “[Franchisees need an] understanding of basic finance and accounting in order to regularly analyze their franchise’s P&L, cash flow and balance sheet data,” says Kushell.

While having the capital for a successful launch is crucial, “Most large franchisees didn’t start off on day one buying huge territories, but instead started with smaller territories or a single unit,” says Dan Rowe, president of franchise development company FranSmart. “So while someone has to have the capital to at least get the business opened comfortably, they don’t need to have the capital for [a multi-unit] development.”

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2. Willingness to follow the franchise system

“More than anything, I would want a franchisee who is going to follow the system at a very high and enthusiastic level,” says Rowe. “For example, Elevation Burger doesn’t really need franchisees who went to culinary school. They need franchisees happy to follow the system that Elevation already has for making the food taste like it is supposed to.”

“If a franchisee is willing to do everything [the franchisor] tells them to do, then it doesn’t matter that they don’t have food or accounting or marketing skills, because they can always hire people [who do],” Rowe adds.

Kushell notes that franchisors don’t want someone who is “too entrepreneurial to the point where you know better than the franchisor and want to change the system.” In fact, he says, franchisors should actively background check prospective franchisees to make sure they don’t show signs of being “dissidents, adversarial or difficult to work with.”

The importance of following the proven system, says McKinnon, is why former military personnel are very good franchisee candidates.

3. Willingness to work hard

If you think that buying a franchise means you’re going to have everything handed to you on a silver platter, think again. [Franchisees] must be willing to work harder than they have ever worked in their lives,” says McKinnon. “There is no ‘easy’ business or franchise, despite what many believe. All startup businesses are hard work, and starting a franchise, while it has much less risk than a non-franchise startup, is still hard work.”

Kushell agrees, noting that savvy franchisors will check a candidate’s references looking for a past history of “accomplishment, hard work and motivation.”

In addition, says Kushell, most franchisors will want to see a full-time commitment of the franchisee’s time and resources. “While some franchisors will sell to an absentee investor, I believe it is essential that a franchisee’s full time be [committed if] operating a single unit.”

Since part of working hard is dealing with the inevitable conflicts that arise, franchisors seek franchisees with problem-solving skills. “Every relationship [has] problems,” says Kushell. “The ability to resolve them—both within their franchise and in their relationship with the franchisor—is essential.”

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