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How does a franchisor vet prospective franchisees?
Franchisors consider a wide range of factors when vetting prospective franchisees.
It’s important for the franchisor to determine if the franchisee has adequate financial resources. Although franchisees may borrow some funds, franchisors should evaluate whether the franchisee is offering any personal financial commitment, as it’s more likely for a franchisee to stay with the franchise operation in difficult times if they’ve made a significant investment.
Experience is another factor to consider. Some franchisors may want a franchisee to have little or no prior experience of their sector, so that they can train them without any conflict.
On the other hand, franchisors may look for specific knowledge or skill. The level of experience required will vary according to the franchisor’s own requirements.
However, the key factor for most franchisors is the relationship with their franchisees. It’s essential for the franchisor to be able to work with and trust the franchisee with its brand name and goodwill.
A franchisor will try to establish whether a franchisee has the ability to cope with being self-employed. It will look for commitment from the franchisee and an understanding of all that’s involved in running the franchise. The franchisee’s family support system will also be factored in.
In addition, franchisors should evaluate how ambitious a franchisee appears to be, as the more committed they are the more likely they are to be successful. The franchisee must be capable of managing a business on their own independently, but must also be willing to work within the constraints of the franchise system.
Shelley Nadler is a legal director in Bird & Bird’s international franchising team and has many years’ experience of advising on all aspects of franchising.
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