Selling Franchises to Great Operators Who Will Fail You & You Will Feel Awful for It

Posted by Joe Caruso  |  category Operations

The best franchise recruitment selling is about getting new franchisees who have both talent and capital to develop your concept.

If you've been selling franchises even for a short time I will bet you have met the proverbial great operator or applicant with the ideal background to be franchisee in your system. And not only you like them they love your brand, franchise concept and company culture.

They are a fit.

It's a match made in heaven with the sun, the moon and the stars almost aligned. But the prospective franchise buyer is a little "light" on the capital. They have a awesome credit, some cash and an okay net worth but all told the financial picture is not quite a match. They are short on both net worth and liquidity.

But everyone at the franchisor loves these prospective franchise buyers because of their background and positive attitude. 

So the franchisor makes an exception despite the fact that they are not fully financially qualified.

I remember a time when we sold a franchise to a husband and wife franchise team who were just what we were looking for except they didn't have enough money to meet our financial standards.

We worked very hard with these franchisees to keep the investment within their means. We found real estate to lease they could afford in market that would be great five to seven years down the line. And the landlord was hungry enough to accept their financials. We used all our relationship credibility with our preferred SBA lender to get them approved for their loan.

It was hard to do but we got them open and running.  

The grand opening was exciting. 

And it was almost immediately that we began to have second thoughts about our great operator. 

They had cut corners on equipment in terms of quality and what they needed for the business. They were still the awesome people we fell in love with. They had made business decisions that were based on their lack of funds. And the real estate we approved was at best a C location.

It didn't take long for their working capital to run low and causing them to have to cut back on advertising and marketing. And we advised them that without consistent promotion of the business it would make it even harder to develop new business. 

Franchisees usually don't fail overnight they fail over time and to the extent that they can endeavor to persevere with money from maxing out credit cards, friends and family. But it gets exceedingly difficult to get out of a downward spiral when you are starting with too little capital and picking not the best location but the one you can afford.

Here's how the saga ended. 

Our franchisee stopped paying their landlord first. They quit making loan payments. They paid us royalties and ad fund as long as they could and then couldn't any longer.

They asked us to help them sell the business. Nobody wanted it. 

They filed bankruptcy - The End.

So when you meet your next great operator tell them to get a financial partner so they can qualify and do your franchise concept the right way in the right location with the right tools. 

It's just not worth your company's time, energy and effort to work against all the obstacles you create with a franchisee who starts with not enough capital. 

Don't settle and don't cut corners. 

You need to recruit franchisees with both talent and capital.

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March 13, 2014 07:00 PM