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The Right Stuff

Are you franchisee material? Take a look at yourself from a franchisor's point of view, and see how you measure up.
September 1, 2004
URL: http://www.entrepreneur.com/article/72156

If you've reached the decision to buy a franchise, it's almost like settling down with that special someone. After reviewing the multitude of franchising options available, you've singled one out. Now, let the courtship begin...with the franchisor.

In traditional courtships, meeting the parents to obtain their blessings is proper etiquette. For franchisors, it's mandatory, but they, just like parents, want to get to know all about you. Good franchise companies can't and won't simply hand over the keys to your business upon deposit of your franchise fee-they have to consider many factors first. During this "investigation process," the honeymoon may seem as if it's over before it ever began, and you may become annoyed with the barrage of questions. But upholding standards for their franchisees not only ensures that quality and excellence are associated with their image, but also with yours, if you join their "family."

Do Franchisors Want Entrepreneurial Franchisees?

Emerging successfully from your franchisor evaluation requires understanding what they're looking for and proving you've got those qualities. While running your own franchise is like being an entrepreneur in regard to working for yourself, Jeff Elgin, founder and CEO of franchise referral consulting firm FranChoice, in Eden Prairie, Minnesota, believes most franchisors seek system-focused people rather than true entrepreneurs. "[Franchisors] have spent years building the company," says Elgin. "They don't want someone who will come in and try to innovate, because that produces chaos."

Choosing a franchisee who's too entrepreneurial can lead to problems, agrees John Campbell, vice president of franchising for Papa John's International. But the other extreme he sees is selecting a candidate who's unable to follow a system, though they really try. "In either case, we have all made bad choices in our quest to help them become successful businesspeople," Campbell says.

"You want someone who has enough entrepreneurial spirit to be on their own," says Rob Sanders, director of market expansion for Merry Maids. But with a franchise, he adds, "you don't have to reinvent the wheel." Ultimately, according to Sanders, they look for a good balance between the entrepreneurial and the system-focused person.

What They Look For

In terms of experience, many franchises, including both Papa John's and Merry Maids, prefer management backgrounds. Elgin finds that franchisors typically don't seek out candidates with specific skills related to the industry, but there are exceptions. Conversion franchises, such as hotels and real estate franchises, seek experienced people who are knowledgeable in the field. Papa John's also prefers candidates with a food-service background and operations qualifications. But it's not a deal breaker if you don't have these traits-in some instances, Papa John's will advise you to either first gain experience as an employee or to go into a partnership.

While every franchise has its own standards, both attitude and personality are universal factors franchisors consider. Says Elgin, "Sometimes you get people who are wishy-washy. Those people are scary to a franchisor." Those who have a firm sense of what they want to achieve are far more likely to impress franchisors. Franchisors also judge what type of personality you have and how that will translate into running one of their franchises.

Although personality ranks high, it's still not strong enough to stand alone without financial qualifications. Fortunately, some franchisors offer help. Papa John's has 10 companies that finance their franchisees, says Campbell, "depending on their creditworthiness and the number of stores that are to be built."

But many prospective franchisees don't know or understand marketplace financing, says Elgin. Some candidates believe they can easily borrow money to cover what they don't have. "Unless the franchisee has an existing business or personal assets, an overwhelming majority try to set up home equity," he explains. "But the minute you say you want it for a business, it becomes very difficult." Huge factors in looking like the right candidate are having capital resources and showing franchisors you've got your finances in order.

Get Ready

Before even approaching a franchisor, Elgin suggests some key things. Prepare a personal financial statement listing all your assets and liabilities. This includes cash, stocks and similar investments, your home, personal property, credit card bills and car loans. Calculate your net worth and liquid assets. Many franchises zero in on net worth and liquidity. Having those numbers, along with your financial statements, at your fingertips is impressive and shows you mean business.

How important are net worth and cash liquidity? According to Sanders, cash liquidity is more important in the beginning to Merry Maids than net worth, due to the high amount of debt net worth sometimes includes. Campbell says, "Financing debt on debt is not a great formula for success. Depending on the strength of the net worth, financing can be a valuable option [in some] circumstances."

It's equally important to think about what you want in a business. Elgin suggests two things to consider:

1. Your long-term goals: What do you want to gain from owning this franchise? Do you want a business that absorbs you or not?

2. Your compatibility with the franchise: When Elgin got into a video-rental business many years ago, he was used to working the 9-to-5 weekday routine. Suddenly, he had to be at the business every evening, weekend and holiday. If you want to work only at particular times, find a franchise that operates on a similar schedule. Determine the number of hours per week you want to be there, and if you have a family, factor in time for them. But remember, as the owner, you're on call for emergencies or to fill in for absentee employees.

Got Skills?
What skills do franchisors look for in future franchisees?

Marketing Skills 39%
Industry Experience 29%
General Business Experience 31%

Source: Entrepreneur's Franchise 500®, 2004

In finding a franchise you can be happy with, Elgin urges, "Think about what you like to do and what you're good at." But be aware that even corporate-world experience can still not be enough when it comes to managing employees. The environment is often very different from the corporate sector, and you'll be recruiting and hiring employees who bring a host of new issues for you to deal with, such as language barriers, turnover and absenteeism. If personnel issues are not your forte, consider hiring a general manager, but find out first if the franchise allows that.

Being prepared for the evaluation is advantageous to both you and the franchisor, because it allows both parties to see if there's a good fit. Preparing thoroughly to prove why you're worth investing in puts you in a much better position than hastily popping the question and facing rejection.