5 red flags that Franchisors Look for in a Franchise Owner

BRENT DOWLING
October 28th, 2022

Throughout the process of entering a franchise relationship, both the franchise candidate and the franchisor closely examine one another to ensure that each is entering a good deal. Although brands are often in a hurry to claim market share, they will still invest several months into developing each new franchise relationship.

A responsible franchisor will closely study franchise candidates just as intently as business-savvy candidates should be evaluating potential franchisors. Not every pairing of a quality franchise owner and quality franchisor will result in a suitable match.

The Single Most Important Red Flag to Look for in a Franchisor

Before we get into the red flags that Franchisors will be looking for in you, let’s start with one you should be looking for in franchisors. The one franchisor red flag that will be covered in this article is the presence of a robust, structured, and consistent franchise education process. This is where inexperienced and emerging brands get into trouble since they are eager to begin awarding franchise licenses but have not yet developed an understanding of the type of person who is more likely to be successful as a franchise owner in their system.

Conversely, strong franchisors will provide a clearly defined franchise education process, complete with several stages that allow both the candidate and the franchisor to understand one another better. Most (quality) franchise brands will offer a similar franchise education process, often referred to as an “education process” or “discovery process.” No matter the name, the intent is always the same: for each party to learn more about the other, acknowledging the reciprocal commitments of the franchise business model.

If the franchise brand you’re investigating doesn’t provide you with a well-defined process of the steps ahead and seems to be pushing you to sign an agreement and send them a big check as soon as possible, I’d dare say it’s time to RUN.

5 Franchisee Red Flags that Franchisors are on the Lookout For

Franchise owner candidates often make the mistake of thinking that the application process is a one-way street in which they are sold something and expect to be wined and dined. While wining and dining occurs, the goal of the process (for a quality brand) is to confirm a strong fit involving a two-way relationship, where interest is mutual and reciprocal.

At Raintree, our role is to facilitate that evaluation process. We ensure that the franchise owner candidate has all the information they need to make a well-informed decision about investing in the franchise and confirm that the candidate has the required skills, financial backing, and culture fit in order to be successful with their chosen brand.

So, without further ado, here are the franchising red flags that a quality franchisor should be on the lookout for:

1. Poor Communication Skills


Communication skills are leadership skills. They are necessary to lead and motivate employees throughout an organization and are critical in providing top-notch customer service. 

Without effective communication skills, franchisees will find it difficult to achieve unit growth, sales success, recruitment and retention of talent, and operational efficiency, among other things. In the day-to-day operation of the franchise unit, how the franchisee (aka franchise owner) communicates to others serves as the glue holding everything together. If the franchisee is unable to communicate effectively, then he or she will be unable to delegate tasks, set short-term and long-term goals, or instill a vision in the minds of the entire operation to guide the franchise unit(s) toward success.

2. Not a Team player

 

McDonald’s franchising mastermind Roy Kroc put it best by promoting the slogan, “In business for yourself, but not by yourself.” Becoming a franchisee has everything to do with your financial goals, professional goals, and desire to build generational wealth for your family. But running successful franchise businesses, the kind that achieves those types of goals requires teamwork and the ability to collaborate and work well with others.

Remember that becoming a franchisee means joining a network and a community of other franchisees and franchisee support professionals (if you’re franchising with a quality brand). If you don’t work well with others, you won’t be able to fully leverage that network to your advantage.

Franchisors will be looking out for how you interact with their development or franchise sales representatives, as well as other franchisees within the brand, to determine how well or poorly you engage with those around you. Note that some franchise business opportunities require less teamwork and collaboration than others. If you like interacting with people but see yourself as more of an introvert or a “lone wolf,” then make sure you select a franchise brand that is well-suited to that aspect of your personality.

3. Lack of Financial Capacity

 

One area that isn’t so much about how the franchisee presents themselves but has more to do with the initial application submission is all about your net worth and how much financial strength you bring to the table. Franchise units that don’t have solid financial backing from the franchisee will already be behind in this area.

Experienced franchisors know that candidates who only scrape enough liquid capital to cover the initial financial investment are high-risk and will be unwilling to award you a franchise agreement. Since everything is on the line, new franchise owners without the right financial backing can often make emotional decisions in the day-to-day running of their business. And they may not be able to inject more operating capital that might be needed to carry the business through the first year.

Good franchisors make sure that if you want the best chances of success,  you will not be financially strained by the time you open the doors to your franchise. Be realistic, and make certain that your journey toward becoming a franchisee is not being led by blind optimism. Be genuine and honest about what you can afford and what you can invest into the franchise business financially. More experienced franchisors will look for proof of funds whether that be copies of bank statements, bank letters and more.

4. Not Passionate/Invested in the Brand

 

For the brand to be successful, there must be a natural chemistry between the franchisee and the brand. That’s what will ultimately determine whether the franchise unit is a success. It must have that synergistic mix of the right brand characteristics and the right franchisee leadership. Not every relationship between a franchise brand and a franchise owner will look identical. Still, they will all need to include aligned values for how the franchise units will be run, along with how well they honor the brand messaging and vision of the franchisor.

Only these franchisee candidates will gain the franchisors’ confidence that their franchise owners are making decisions based on what’s best for themselves and the company.

5. Not Fully Committed


Ultimately, franchisors are looking for signs that the franchisee candidate is hot on the trail of a profitable franchise business model but isn’t willing or able to put in the hard work and quality effort needed to show up on the franchisee’s end of the franchise relationship.

Franchise ownership does offer a stronger, lower-risk path to business ownership and passive income than starting an independent small business, but it still requires hard work and personal sacrifice. Remember that the franchisor is taking a major risk on every franchise license they award, and a quality franchisor will have high standards for the franchisee candidates they grant them to.

Accordingly, good franchisors will look for signs of urgency and timeliness. You’ll find good franchise development representatives will ask for agreed upon timelines for the various stages of the mutual evaluation process. If you miss too many of those timelines, you may find that the offer of your franchise agreement gets retracted.

4 Important Stages in the Franchisee Selection Process at Raintree

At Raintree, our franchise development team has a robust discovery process for our franchise candidates. We pride ourselves on our ability to learn from and guide our franchisors and franchise owner candidates toward perfectly matched franchise relationships.

Below are just a few of the key stages in our discovery process where the franchisor is looking to understand better how well you fit into the organization:

 

1. The Qualification Call

 

Unless you were directly introduced to a recommended brand via a franchise consultant (aka a franchise broker or franchise coach), when you reach out to a brand, either via a phone call or by submitting an online inquiry through their website, you’ll receive a call soon afterward from a franchise representative. Internally, they are known as “development managers”.

During the qualification call, the lead qualifier is going to ask questions and listen closely to your answers to determine whether you check the following boxes:

  • You meet the minimum financial requirements
  • Your preferred territory aligns with their subsequent availability
  • You possess the prerequisite skills to be successful
  • Your characteristics, goals and motivations suggest a good culture fit (they align with the brand culture)
  • Your timeframe matches the speed at which the brand plans to capture market share (if you’re not looking to start in the next 6-12 months, most brands will opt to move on)
  • You are respectful and courteous to the lead qualifier (only polite and respectful candidates are likely to be polite and respectful partners to the brand franchise and a solid addition to the network of franchise owners)

If you tick all the boxes verbally and the lead qualifier is satisfied with your answers, he or she will likely ask you to complete a short application, which will then be used to present you to the senior franchise development staff as you move into the next stage.

While it’s ok to ask your initial list of questions, don’t expect to get several hours’ worth of information from the initial representative. There is red tape preventing the brand from divulging proprietary information too early. Again, there’s a set process in which all the information is shared strategically across the coming steps.

2. The Initial Call

 

Making it to this next step means that you checked all the lead qualifier’s initial requirements. To be clear, this doesn’t mean that the franchise brand has decided that you are the right person to bring the brand to your market. Instead, it means that they think it’s at least a good use of both their and your time to continue down the full franchise discovery process, which is often a 6–8-week journey.

This step is the initial call because it’s typically the first interaction you’ll have with a more senior franchise development representative. This same person will act as your tour guide, point person, educator, and salesperson for the remainder of your journey to franchise ownership.

They’ll start to answer more of your initial questions, and try to get a better sense of your potential fit in the franchise system. Specifically, they’ll look to ascertain whether your business goals align with the reality of the average franchisee’s performance, and whether you look fit culturally with the brand.

3. The Presidents Call/ Executive Interview

 

Usually, after about 3-4 weeks of mutual evaluation and brand education, if you continue to show signs that you have all the ingredients necessary to become a successful franchise owner, you’ll be invited to speak directly with a brand founder or top executive.

They will answer any questions you have for them. They will look for thoughtful questions that show you did your research in the month prior. They’ll also be looking to ask you questions to confirm everything our franchise development team believes they see in you:

  • You have the aptitude and skill sets
  • You understand the true investment requirements
  • You fit the culture and community
  • Your financial expectations are aligned with the reality of our other franchise business owners
  • Your expectations of the support team and process are aligned with what we provide

On top of that, we look to see if there’s a little chemistry. We will be business partners, and we need to click for us both to be successful together.

4. Approval Day

 

This is your chance to visit the franchisor’s home office, meet the executive team, see the franchise business model in action, and test out the idea of a business relationship. At Raintree, we call this “Approval Day,” reflecting directly on the day’s intent. It’s the final step of the process and gives us one last opportunity to approve of us, and vice versa.

To that end, throughout the day, good franchisors will quietly be evaluating you, trying to identify whether:

  • You’re paying attention, demonstrating organizational skills, and appear excited about the franchise business opportunity.
  • You have positive interactions with support staff and other potential franchise owners in the group.
  • You respect the franchise business model and understand the importance of adhering to the model and system as is, day-in-and-day-out.
  • You match the culture!
Becoming a Franchisee with Raintree

Again, you may be under the impression that everyone who applies for a franchise license receives one. Maybe that’s been your experience with other brands, but that’s certainly not the case when franchising with the quality emerging brands in the Raintree portfolio. If you want a sense of how selective we are with our brand candidates, take a look at the statistics on how many of our franchisee candidates (across the franchise brands in our portfolio) ultimately succeeded in being awarded a franchise in 2021:

2945 Total
Franchise Applications for 2021

2945 Total Applications

2599 Immediately Declined Applications (~88%)

- 107 Post-President Call Denials (~4%)

239 Total Number
of Franchises Awarded (~8%)

Less than 10 percent of our almost 3,000 franchisee applicants made it through our selection process and became franchise owners. Our franchise development team knows what it takes to create successful franchise relationships, and we see it as a responsibility and a privilege to help make perfect matches.

Raintree is an industry-leading franchise development organization and a leader in national franchise sales. Our professionals drive the success of quality franchise brands by assisting in the matchmaking process between top-notch franchisees and franchisors. Our portfolio includes the best franchises to own, including brands like Footprints Floors, Dog Training Elite and Voodoo Brewing Co., which have lean staffing requirements, higher economic performance potential, and the type of business ownership experiences that franchise owners love.

Good luck as you proceed through your franchise discovery process, and remember, good brands are studying you just as much as you’re studying them.

References

Crocco, Kerry. “7 Characteristics of a Great Franchisor.” Franchise.com. https://www.franchise.com/blog/great-franchisor/. **as a note, this is a GREAT article.

Elgin, Jeff. “Top 5 Characteristics of Successful Franchisees.” Entrepreneur.com. https://www.entrepreneur.com/franchise/top-5-characteristics-of-successful-franchisee-buying-a/60986.

Gustafson, Katherine. “The Percentage of Businesses that Fail and How to Boost Your Chances of Success.” Lending Tree. https://www.lendingtree.com/business/small/failure-rate/.

Sayegh, F Georges. “12 Characteristics of a Successful Franchisee.”CMC Canada. https://cmc-canada.ca/blog/Our%20Blog/twelve-characteristics-of-a-successful-franchisee.

“Our History.” McDonalds. https://www.mcdonalds.com/us/en-us/about-us/our-history.html.

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Brent Dowling, CEO - Raintree, The Franchise Growth Experts
Brent Dowling
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