Over the past six to 12 months, I have worked with a number of franchise owners who plan to sell franchises. In all cases, they had sold franchises in the past and had seen mixed results. Sometimes it had worked out. Other times, not so much. This time, all of them wanted to make sure that they sold to someone who was likely to succeed. They all recognized the risks associated with selling to the wrong franchisee, but did they do a franchisee assessment?
For the franchisee, one thing is clear. There’s a real turn-key value of buying a franchise compared to starting a business from scratch. As a franchisee you’re buying into a tried-and-tested business model and the related systems that should help the business run smoothly. Despite all of this helpful infrastructure, a franchisee’s success is never a “given.” In the wrong hands, a viable business can easily become a failed business. Sadly, when a franchisee fails, it reflects poorly on the whole brand.
Many experienced franchisers have learned that it’s riskier to sell a franchise than it is to hire an employee. Here are some reasons why:
- It is harder to “manage” a problematic and independent franchisee, there is often less room for oversight
- A franchisee will probably have much more visibility and influence than an employee. If/when things go poorly, it’s often more public.
- If you think severance pay is expensive/inconvenient, try getting rid of a franchisee
- Just like employees, some franchisees just don’t fit with the culture or don’t understand the full responsibilities of business ownership.
Risk Management For Franchisers
So what’s an aspiring franchiser to do? How can they increase their odds of selling a franchise to someone who is likely to succeed? One easy and effective option is to do a Basic Franchisee Assessment. Here’s how it works:
Basic Franchisee Assessment
- Potential franchisee answers some questions online
- I/O Advisory Services prepares a short report based on the online assessment. This report will identify potential red flags (and/or notable strengths) that should be considered prior to selling to the potential franchisee
- Awareness of these red flags may suggest that these issues should be probed during meetings/interviews that take place before the sale of the franchise (see Enhanced Franchisee Assessment)
Sometimes, the Basic Franchisee Assessment Report raises concerns that warrant a closer look. In these situations, I recommend that these concerns are addressed during meetings or interviews with the aspiring franchisee. A wise way to prepare for these meetings or interviews is to do an Enhanced Franchisee Assessment. Specifically, this includes:
Enhanced Franchisee Assessment
- Prepare interview questions to confirm or refute the red flags or issues of concern that were raised during the basic assessment
- Propose coaching and/or training to support the franchisee so that they can succeed in their role as a business owner and leader
As your (franchise) business grows, I/O Advisory Services can provide you with occasional Human Resources (HR) support. This is much more cost-effective than having someone play this role on a full-time basis when the need is temporary and periodic. I will help you identify the appropriate profile of hard and soft skills that your future employees should possess. Then, I can create interview questions that will help you tell the difference between job applicants who can say the right things during an interview versus job applicants who can actually deliver once they’ve been hired. I’ll also help you make sure that your reference checks yield worthwhile insights, rather than being a meaningless formality.
Note – In July 2016, I reconnected with Ms Erin Hamilton, the founder of MOGL Small Business Services. MOGL connects Ottawa businesses with MBA-level business talent on an on-call basis. My conversation with Erin about the work I’ve been doing with owners of franchises inspired this blog post.
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