Franchise Sales: How-To and the Hardest "No" in Business

Robert Stidham

Date

Dec 07, 2016

Franchise sales sometimes appear easy — create a compelling value proposition, generate franchise leads, finalize some contracts, and deposit those big checks. Simple, right? In theory, sure - in reality, potentially devastating when not done correctly.

New franchisors are understandably eager to sell to that first franchisee prospect that’s ready and willing to sign. They’ve spent a lot of money and time in launching their franchise program, and are ready to recoup their costs and begin enjoying the benefits of a new revenue stream through franchise royalties. Unfortunately, this eagerness to sell can be a franchisors biggest downfall. Selling a franchise without first understanding the goals of the prospect, understanding how they fit into the features of a given franchise system, and ensuring qualifications and organizational fit can be potentially devastating to a franchise system.

Just say no, if necessary

While turning down a check for $35,000 or more may be tough for new franchisors, the long-term effects of an unqualified franchisee can severely fracture a franchise program, especially in its infancy. Let’s say a franchisor moves forward with an unqualified candidate, and that particular franchise location shuts the doors after just a few years of unsuccessful business. Aside from the obvious issue of a loss of royalties for the franchisor, the behind the scenes effects are often more destructive:

  • Poor or bad validation: Ultimately, every franchisor needs good (or great!) validation from its franchisees to continue to award additional new franchises – poor franchisee selection leads to poor unit performance – and, ultimately, poor validation.Disclosure document red ink: Each and every failed franchisee must be included in the disclosure document, including their contact information, presented to prospects. For a franchise candidate, a long list of these failed franchisees is a potential red flag, especially for a franchise with a small number of locations.
  • Disclosure document red ink: Each and every failed franchisee must be included in the disclosure document, including their contact information, presented to prospects. For a franchise candidate, a long list of these failed franchisees is a potential red flag, especially for a franchise with a small number of locations.
  • Brand advocacy loss: Often, franchise candidates will reach out to current franchisees to investigate their experience with the franchise program. Sure, there may be great affirmation from successful franchisees, but the sore thumbs are failed franchisees and their often-exaggerated stories of their personal franchise nightmare.

Award carefully by setting standards

Consider this — on the surface making a sale is about cashing the next check. However, if a franchisor considers each one of their potential sales as the act of awarding a franchise, it’s a bit tougher to start selling franchises left and right. Like your mom always suggested, certain things are a privilege, not a right. By setting standards ahead of the sales process, a franchise puts itself in a great spot to award locations to successful franchisees.

Those standards can be abundantly varied, but one of the most important parts of the franchise sales process is identifying an ideal franchise candidate. Of course, things like sufficient capital and entrepreneurial spirit are great, but the true evaluation lies in what works best for a franchise model.

Is the ideal franchise candidate a previous business owner, or one that’s fresh and moldable? What past experience is a “must-have” for franchisee ownership? What are the candidate’s goals as it relates to franchise ownership? Among many others, these questions serve as a great initial baseline for weeding out unqualified candidates, and reducing the chances of awarding a franchise to an outlier.

Built to last

Awarding franchises can be a greatly gratifying experience for a new franchisor. Aside from the ongoing financial gains, watching their business thrive and grow under the ownership of the ideal franchisee and continual validation of the business model spells long-term success of the franchise.

To ensure this success, however, means setting and enforcing proper standards for franchise ownership based on a specific set of needs, the system and candidates goals for the business - and awarding a franchise accordingly. Trust that the benefits of long-term franchisee growth and franchisee success will feel better than any one-time check deposit.

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