Franchise Your Business: Closing a Franchise Sale
When you franchise your business, your brand enters the dating game. You might have positive memories of being single again or if you are like me, negative memories of going on lots of blind dates, meeting completely incompatible partners and spending lots of time in awkward situations.
Franchise sales has many similarities to dating, when you are offering a franchise of your business, you are looking for the right fit in a long term relationship. Similar to getting married, where you hopefully didn’t marry the first date you went on, franchise sales requires a bit of selection. For any variety of reasons, some franchise candidates just don’t make good franchisees for your brand.
In a recent call with a client, he lamented about the fact that he had pushed too hard to get the first one sold for a computer repair franchise in Minnesota. The first franchisee was spending more time enjoying day time talk shows and relaxing than focusing on building the business. The difficult part of this scenario is that my advice to the client was that first, they hadn’t done anything wrong and second they needed to kick support and oversight of that franchisee into high gear.
Franchising is a game of momentum, energy and excitement and again, much like dating, people want to date the person who have more options for a date. By selling the first franchise, our client had proven to the franchise market that their concept could be sold. If they are able to keep this franchisee in business, even if not overly successful, they now have a reference point and person they can use as a reference. In my experience, the first franchise might take 3-9 months to close from the time a franchise brand is launched, after the first unit is sold, the second franchise will take 2-4 months from that closing. This speed of acquisition will continue to increase in most cases in that new franchisees are seeing, hearing and finding more validation for why they should consider purchasing a franchise of your brand.
The key to this scenario is that we don’t let the franchisee fail for a couple of reasons – one, we don’t benefit from improved validation of the brand and franchise platform if their business closes – second, we need to disclose in the Franchise Disclosure Document any franchisees who have closed or ceased operations. The key to this process is to get momentum with the franchise brand and show others that the concept is working in new markets.
I distinctly remember the time period where I got better at dating. My process, questions, ability to cut through the nonsense and just ask questions as to whether someone might be a fit for my needs and me a fit for theirs became second nature. The same happens in franchising. As a new franchisor, your qualification process gets better, more fine-tuned and ultimately you will begin to understand who makes a good franchisee and who makes a bad franchisee. Mature franchise brands with 50 units or more are extremely critical of who is allowed into their franchise system. This could mean a variety of things depending on the qualification factors. First, does the buyer have enough money to operate the business successfully – not just hard operating costs, but also working capital the franchisee can use to truely build the business and manage the slow cash flow months of a new company. Second, a franchisee should be screened for skill sets and qualifications as a franchise owner. If you are in the restaurant business your franchisee probably needs to have an eye for detail, operational capabilities and an eye for service. A service business such as epoxy flooring most likely needs someone capable of sales, marketing and business development. The point is as the franchise system grows, a Franchisor should become more critical of who they are letting into the brand.
We have had success with using duplicate franchise evaluation forms, a minimum of three calls and a required discovery day visit before someone is awarded the franchise. This puts the franchisee through an inevitable screening process where they many times will “weed out” themselves by not participating in the stages needed to move through the buying process. It also provides the Franchisor with more information, insight and detail on each candidate so that you may make decisions related to a candidates ability to work in the franchised business. Great franchise systems are extremely critical of who is provided the opportunity to buy in. This is also made easier as the franchise system expands and royalty revenues increase to support profitability of the organization which in turn makes it easier for a franchisor to say “NO” to the wrong buyer.
Franchising can be a lot of fun….like dating…..but it is important to know who you would consider being a good date and where you are in the evolution of your franchise brand. As your brand and ability as a franchisor grows, you should be more critical of who you go on dates with.
Christopher Conner is the President of Franchise Marketing Systems. Mr. Conner has spent the last decade in the franchise industry working with several hundred different franchise systems in management, franchise sales and franchise development work. His experience ranges across all fields of franchise expertise with a focus in franchise marketing and franchise sales but includes work in franchise strategic planning, franchise research and franchise operations consulting.
Christopher has worked with multiple International franchise and licensed organizations throughout the United States, Middle East, India and Europe.
He has an MBA in Finance and Marketing from DePaul University in Chicago and a Bachelors Degree from Miami of Ohio.
For more information visit:www.franchisemarketingsystems.com