By Paul Giggi
If you have decided to purchase a franchise one of your first considerations may be questioning if you and your partners will meet the qualifications of the Franchisor. This is a reasonable question as you don’t want to spend too much of your time and energy researching a concept and managing through a process, if you don’t qualify and the Franchisor will not want to begin investing time in discussion and research with you and your partners if you don’t meet their qualifications hurdles.
There are a few standard hurdles that you should understand and so you can make a self-evaluation with regards to in your moving forward strategy.
Some Franchisors maintain minimum requirements regarding experience while others may not be as demanding of your background. In the restaurant industry the typical requirement will be linked to your background and normally the requirement will be restaurant experience for a certain period of time or experience in managing a business enterprise and its P & L. This should be an easy self-audit, but if there are questions in this area be sure to ask the Franchisor for clarity before proceeding.
In this area you will often find more stringent qualification hurdles. The two typical financial items that will be highlighted are minimum financial resources on you or your partnership in both Liquidity and Net Worth.
· Liquidity refers the amount of money that you have easy and quick access to and that you wouldn’t have to add debt in order to access.
· Net Worth is a set formula; basically your current assets minus current liabilities yielding a dollar amount of which your financial portfolio is valued. The Franchisor will normally have a format for you to use to determine your net worth but, if not, there are many templates you can access to calculate for yourself. The SBA provides a good one to use.
If you don’t meet the financial hurdles the Franchisor maintains, they may suggest you try to add a financial partner and if that is not feasible, may deny you approval to be a franchisee.
Typically, the financial hurdles set by the Franchisee are in place to assure that the Franchisee prospect is not going to over reach their financial capabilities to develop and operate the concept thus causing greater risk of failure for all parties.
Background Checks and Credit Checks
A Franchisor will make it a part of their approval process to complete a Background check and a Credit Check of you and/or your partners. This is to assure that you have a strong track record of managing your debt and that you have shown fiducially responsibility. The Franchisor is entrusting their brand name and concept to you and they need to be sure you will handle it in a professional responsible manner.
There are other components to your being approved through the Franchisor’s approval process that we will cover in future discussions. The above noted items are those that you can check for yourself before spending much of your time and/or money in the pursuit of a particular franchised concept.