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The Importance of Financial Qualification For Prospective Franchisees

  Sue McConnachie   |     Dec 30, 2020

Franchising is an excellent way to grow your company, but if done incorrectly, can have detrimental effects on your brand, your business and your bottom line.

That’s why taking the time to thoroughly screen your franchisee candidates is critical to any franchisor’s success. Without a comprehensive screening process, you will quickly see your resources move from business growth and planning, to quality control, dispute management, and perhaps even litigation.

One of the best ways to screen you applicants is to invest in in-depth credit reporting services.

Doing so will help you to confirm your applicant’s financial stability and background as well as obtaining the answers to these other key questions:

  • Has my candidate been truthful on their franchise application?
  • Are they financially capable of maintaining the franchise?
  • Do they have the financial stability to operate the franchise?
  • What are their assets and liabilities?
  • Have they had other failed business ventures?
  • Do they have a history of delinquent payments, legal actions or judgments?
  • Do they have criminal records?
  • Have they had negative media coverage?

By answering these questions, you can help ensure your franchisee’s ongoing success in several ways.

Brand Image

“One bad apple spoils the bunch.” It may be a cliché but when it comes to franchises, it certainly holds true.

Your franchise owners are the face of your company, and the way they present themselves and conduct business, are ultimately a representation of your brand. If they do something that negatively affects their individual franchise, it will likely impact the reputation of your entire brand.

That’s why it is so important that your franchisees are properly screened. Doing so will minimize the likelihood of partnering with someone who will tarnish your brand name.

Resource Allocation

As we mentioned earlier, poor franchisee screening will affect the allocation of your resources.

One of the primary purposes for franchising is to grow your capital for continued prosperity. It is no surprise then that, as a franchisor, you want to leverage your resources (financial and non-financial) for business planning, strategy and ongoing success.

If you partner with poor quality candidates, you could be exposed to legal liability for a franchisee’s wrongful conduct, as well as legal claims launched by or against these franchisees. This could force you to re-distribute resources, originally allocated for growth, to dispute resolution, problem-solving and legal fees.

By implementing an enhanced screening and due diligence process, you can help mitigate these potential risks.

Maximize Success

Your franchise system is dependent on the success of your franchisees. If there is a high rate of failure and turnover, it will not only affect your customers, but will reduce the number of qualified and desirable prospective franchisees drawn to your brand and eventually your profitability.

By ensuring you partner with franchisees that have a high likelihood of success, you can better ensure the success of your entire company.

If you would like tips on how to find the right candidate, check out our blog on Best Practices for Selecting a Franchisee.

For more information on how we can help you improve your franchisee screening and processes, contact us today!

Franchisee Screening Solutions Report

By Sue McConnachie

 Tags: Franchising

Quality Credit Reporting is North America’s premiere credit reporting agency, committed to providing unparalleled, high-quality reports and services.

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