After building up a successful core business, investing a significant amount of capital into preparations, and filing the proper paperwork, you have finally franchised your business and are ready to expand. Before you take that first check, however, keep in mind that the success of your franchise depends on the success of your franchisees. In other words, don’t just pick anyone, no matter how tempting the money may be. If you don’t want all of your hard work to go to waste, then you will have to choose wisely.
Why shouldn’t you just sell a franchise to whomever? Well, first of all, underperforming franchisees require more support than strong franchisees. Not only that, they generate lower profits and therefore pay less in royalties. In short, franchisees that don’t do well cost the franchisor more.
Second, prospective and current franchisees talk amongst themselves. A successful franchisee is more likely to put in a good word for you and thus encourage more business, whereas an unqualified, unsuccessful franchisee will probably complain and place blame on you even though their failure is their own. Your franchise’s reputation is crucial to its success – don’t let it get ruined by an ill-equipped franchisee.
After considering all of the cons of selling to an unqualified franchisee – increased support costs, increased litigation, reduced royalties, and a reduced ability to sell more franchises – it is easy to see why taking a bad franchisee’s check is just not worth it, even if you’re selling for tens of thousands of dollars. The bottom line is this: sometimes you have to walk away from money in order to make more down the line.
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