Advisory Nov, 24 2009

Cautious steps for evaluating franchisees

Franchising has emerged as one of the greatest business opportunities across the world for over a decade. An increasing number of people, especially the youth is embracing it fervently. Enthusiasm is good for every business, but franchisors need to be cau

By Vishwa Sharva Dobhal
Editorail Co-ordinator
Cautious steps for evaluating franchisees

A franchisor has already established a renowned brand and has developed all the tools and systems required to run the business successfully. To expand his business further, he looks for prospective franchisees who can deliver results. Franchising is not every one’s cup of tea. If a franchise is sold to someone, who does not fit into the trade the franchisor will suffer as much as the franchisee who flops. Not that the franchisee fails to produce a promising income, but the failing franchise also causes huge loss of time and efforts to the franchisor, that he may have to incur on saving his unit or sell it to some one else. Here we discuss a few precautions that the franchisors are expected to take while seeking for prospective franchisees.

Franchisee’s financial statements speak: Usually, a franchisor’s scrutiny of a prospective franchisee includes assessing applicant’s resources, background and reputation. The first thing, the franchisor would scrutinise is latter’s financial resources and capability to repay. If the franchisee’s cash and other assets suffice only to buy the franchise, leaving latter with scarce capital, most franchisors would avoid having a tie-up. It is the franchisee’s financial statements which give credence to his status and strength. The franchisor’s priority focus hovers around ensuring recovery of his costs and royalties.

Experience matters: The franchisor’s next concern is franchisee’s experience in trade. The nature of experience required may depend upon franchisor’s insight and outlook. Some may prefer entrepreneurs with some kind of experience, while some may prefer franchisees without any previous experience and provide their own training.

Integrity and attitude concerns: The franchisors would also tend to peep into aspiring franchisees’ integrity and attitude and evaluate if the same is in sync with their expectations. These can be gauzed through personal discussions with the party across table and also through several rounds of questions.

Family involvement: The franchisor would also like to measure the depth of your commitment to the franchise. Most franchisors would want to have an undertaking of hundred per cent involvement of the franchisee in the business. The husband, wife and family involvement in franchise business are considered as a positive indicator to successful and lasting franchise tie-up.

Managerial ability: Of all the attributes required of a franchisee, the most difficult to evaluate is one’s managerial ability. Many applicants may have little or no managerial experience, while others may have considerable experience, but of a type, not suited to franchising. Nevertheless, the franchisee, ought to have seamless direct contacts with the customers, and this is the essence of franchisee.

So, if you have the resources and a penchant for entrepreneurship, jump in, franchising is the smoothest root to success. There are opportunities galore, grab any.

Related: Why invest in a two wheeler business for faster returns?

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