In this blog we look at Franchisee qualification and how a comprehensive screening report can reduce business risk.
Confirming an Individual’s Reported Net Worth
The asset and liability information are provided by the Prospective Franchisee, making the challenge verifying that the information is true and accurate. In most cases prospective franchisees must meet minimum net worth and liquidity requirements to provide sufficient resources to operate the franchise. The challenge is confirming the cash on hand, along with confirmation of property ownership, corporate ownership, investments, stocks, bonds and investment trusts.
Solution:
A comprehensive screening report includes the confirmation of an individual’s assets. Bank accounts balances are verified at all applicable financial institutions. Current investment statements are collected and reported on. Real property title searches are conducted to confirm ownership in property, assessed value, and outstanding mortgages, revealing equity. Company ownership can be verified through corporation profiles and share designation paperwork.
Uncovering Debts/Liabilities
It is not unheard of that an applicant will not disclose liabilities on their asset/liability chart. To correctly assess the net worth of an individual both assets and liabilities need to be verified.
Solution:
A comprehensive screening report will reveal an individual’s liabilities through various sources. This will include secured operating loans, credit cards, mortgages, unpaid collections and pending legal actions or judgments. The information is gathered from banks, personal property lien searches, credit files, land title searches, collection and legal action data bases.
Risks in Not Knowing an Individual’s Personal Reputation
The franchisor is invested in choosing the right candidate whose reputation will represent and promote the organization’s brand image. Choosing with certainty is of great importance with so much at stake.
Solution:
A comprehensive screening report can reveal the necessary details on a prospective franchisee’s reputation. A criminal record history search provides information concerning convictions or pending charges for which the prospective franchisee has not been pardoned. Global Terror Watch lists & OFAC/SND violations can confirm matches on Foreign and Domestic sanctions and watch lists. Media monitoring can uncover negative information from full text adds, major Canadian dailies, newswires, regional community papers, TV and radio transcripts.
Identifying Negative Credit/Legal History
Part of establishing the applicant’s creditability and reputation is ensuring that they have a good credit history and are not involved in legal actions.
Solution:
A comprehensive screening report will provide a detailed credit history including record of late payments, written off bad debts and collections. Also uncovered are legal actions that have been filed and judgments obtained against the prospective franchisee.
The Cost of Comprehensive Background Screening
The cost of due diligence far exceeds the risks involved in choosing the wrong Franchisee. Selecting the right Franchisee can minimize failure and turnover; protect the good will of the brand; increase success and profitability; reduce legal exposure for a franchisee’s wrongful conduct; and reduce exposure to legal claims launched by or against unsuccessful franchisees.
Solution:
Background Screening can be NO cost to the Franchisor. It is common practice that this expense is passed along to the prospective franchisee by incorporating it into the Franchise Fee with transparency by disclosure in the Franchise Disclosure Document.
Quality Credit Reporting is North America’s premiere credit reporting agency, committed to providing unparalleled, high-quality reports and services. Contact us today about Franchisee Qualification.
Tags: Franchising
