It’s Okay to Let the Franchisee Pay
Feb 17, 2020
Every year about three hundred new franchise brands are launched in the United States alone. The franchisee applicant pays the franchisor a franchise fee, and must also have sufficient liquidity and net worth, in order to be considered for approval of being granted a franchise.
However, too often the franchisor pays for the franchisee screening report, when in fact it can be passed through to the franchisee applicant. In fact, most franchisee applicants will actually appreciate paying for their own thorough franchisee vetting. Really, but why?
The typical franchisee applicant is investing a substantial amount of their personal wealth, often approaching $500,000 to $1 million or more. An astute business person will value a franchisor that implements a rigorous background check program to ensure that individuals with undesirable and/or dangerous criminal histories are not associated with the same brand in which they are investing their own assets. With viral social media, brands can be destroyed or severely weakened virtually "in an instant."
In order to have the franchisee pay for their own franchisee screening, it is necessary to disclose either an Application Fee or a Background Check Fee, and place it in the Franchise Disclosure Document (FDD). Proper franchisee background checks is one of the best investments for protecting the franchise brand. This is not only a benefit to the franchisor, but to each subsequent franchisee, who also is making an investment in that brand.
This structure allows the franchisor to implement a very comprehensive franchisee background check program, and the concern should not be the cost, but rather the components of the franchisee background check report. Even the franchisee should welcome their investment in paying for their franchisee screening report, knowing that all the franchisees that follow will also be undergoing the same thorough vetting process that will best protect their franchise brand and their investment in it.
Posted by: Rudy Troisi, L.P.I., President and CEO, Reliable Background Screening
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