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Choosing the Right Franchisee

Who you do business with defines what kind of business you are


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This sponsored content was provided by Deloitte.

What kind of franchise do you want yours to be? Few decisions answer that question better than the people you decide to do business with as franchisees. Choosing the right franchisee can set the tone for your business.

First, before you make the case-by-case decisions about individual prospects, it’s important to define a larger-scale strategy for franchisee selection. Depending upon the size and segment of your operation—and by the role you anticipate playing as a franchisor—you may want to start by leaning toward a particular type of franchisee candidate.

For example, a convenience store chain may prize ambitious hard workers as franchisees, even though they may be less credentialed as business operators. In such a case, the franchisor goes in knowing it will have to take a more active ongoing role in business services such as payroll, accounting, and licensing. That franchisee may need more oversight.

In contrast, some restaurant franchisors may go after more sophisticated franchisees. Perhaps MBAs or alumni of the school of hard knocks—those prepared to be more autonomous in running the back end of the business—or even multiple businesses. In a relationship like this, the franchisor still needs to build in safeguards; but from day to day, it can concentrate on its organization-wide mastery of the brand standard and customer experience.

Franchisee selection is not one-size-fits all. A franchisor may seek one kind of business partner in one region, and a different profile in another. Or it may have one strategy for single-location operators, and another for multi-unit management groups. However, for every type of franchisee who becomes part of the brand, the franchisor should be ready to back up the franchisee selection with the right level of diligence: agreement terms, disclosure documents, and a clear expression of who is responsible for which back-end functions is essential to the foundation for a good relationship.

With every kind of franchisee, however, a franchisor must keep its eye on the ball. At the outset, due diligence may be comparable to a credit or background check—indeed, choosing a franchisee may literally include those steps. Once you’re in business together, every franchise relationship needs a mechanism for risk-sensing and monitoring for threats that range from accounting irregularities to marketing gaffes to consumer lawsuits.

Only with a well-thought-out profile in place can a franchisor take the right recruiting approach to each of the markets it wants to serve. A challenge is that other franchisors are competing for the same pool of franchisee talent.

When an employer seeks to hire individuals, it does so more effectively by establishing an “employer brand” that denotes what kind of experience an applicant can expect. When a franchisor is careful to define what kind of partners it seeks, it can achieve a similar effect. What kind of franchise system do you want yours to be? The answer starts with what kind of people you get into business with.

Consider these strategies for your business

Deloitte advocates taking a lifecycle view in governing the franchise system. Through this lens, the risks and opportunities that affect franchise system health can become clearer.

Some key areas of performance include:

  • Operational and financial modeling
  • Market analysis and strategy roadmap
  • Franchisee prospecting strategy, due diligence, and territory mapping
  • Site performance analytics and site selection
  • Franchisee financing strategy
  • Identification, valuation, and conversion of independent operators
  • Geographical and marketing/sales expansion
  • Construction management

 

 
Kevin Lane - Principal, Franchise Advisory Services Leader
Deloitte & Touche LLP
With over 20 years of professional experience in advisory services, Kevin has served in a variety of leadership and technical roles over the course of his career.  In recent years, he completed an overseas assignment in South America, repatriating to the United States in 2013 to the Dallas/Fort Worth area.  Kevin now serves a variety of Consumer & Industrial Products (C&IP) clients throughout the U.S. in meeting their risk and compliance objectives.  His areas of focus include compliance, third-party risk, and operations. In addition to leading advisory teams for select C&IP accounts, Kevin serves as Deloitte Advisory’s leader for its Franchisor Advisory Services initiative.  Learn more about Kevin and connect with him here
 
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Choosing the Right Franchisee

What kind of franchise do you want yours to be? Few decisions answer that question better than the people you decide to do business with as franchisees. Choosing the right franchisee can set the tone for your business.
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