Franchisee Screening – A “No-Brainer” for Franchisors
Mar 31, 2015
If someone told you that you could obtain information that would help you select the best-qualified franchisee applicants... and that if you plan correctly, you can do this at no "out-of-pocket" expense to you, the franchisor, would it not be a "no-brainer" for you to do? Well yes, there is a "free lunch" after all. Since franchisors typically collect a significant Franchise Fee as part of their franchisee onboarding process, Franchisee Screening should never really be an expense to the franchisor.
The cost for Franchisee Screening can be added to or incorporated into the Franchise Fee, or it can be listed as a separate fee and disclosed as part of the Franchise Disclosure Document (FDD). In either case, the expense for obtaining this valuable information about the background and credit-worthiness of potential franchisee owners, can ultimately be borne by the franchisee applicants. Regardless, since the cost for a "best practices" franchisee background screening report is typically less than one or two hundred dollars, it is money well spent.
Although some franchises may have particular issues of concern that are industry-specific, there are certain basic elements to a Franchisee Screening Report that most franchisors will want. These include a credit report – which shows payment history (both current and historical), the credit score of the individual, public records (tax liens, judgments, bankruptcy), collection accounts, and maybe most importantly, the degree of credit utilization, i.e., how highly leveraged is the individual. If someone is "maxed-out" on all their available credit cards and other lines of credit, this situation generally indicates a higher risk for default.
Another important element of any Franchisee Screening Report is a search of criminal history. Since no criminal database exists that includes records from every county nationwide, it is important to supplement any criminal database search with actual county courthouse searches. Industry best practices generally dictate that all counties of residence for the past 7 years should be covered in any criminal records search (as displayed by a "Social Search" or "Social Trace" address-locator product.... this product also needs be part of the Franchisee Screening Report Package). Further, a separate search of the Federal Courts should also be performed to uncover crimes in the Federal Court System (these courts typically include "white-collar" crimes, such as money laundering, tax evasion, and embezzlement). A reliable background screening company can ensure that industry-best practices and these services are provided to your franchise system. Other searches that may be important to your organization include: motor vehicle reports, civil records searches, and verification of educational degrees and/or professional licenses.
Performing a "best practices" Franchisee Screening Report can help protect your franchise brand, and help ensure the long-term success of your franchise network. Credit reports reveal much about an individual's past financial responsibility and the potential for a franchisee applicant's future payment default. Plus, criminal records searches uncover dangerous criminal histories...be they sex offenders, identity and credit card thieves, or other serious criminal offenders, which will allow you to prevent those individuals who represent a risk to your franchise brand from becoming franchisee owners.
Given that the cost for Franchisee Screening is nominal when compared to the typical Franchise Fee, and that this expense can be passed ultimately to the franchisee applicant.... plus the significant benefits that are provided to the franchisor.... it is clear why Franchisee Screening is a "no brainer" for franchisors.
Posted by: Rudy Troisi. President, Reliable Background Screening.