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As franchise ownership continues to be popular for people looking to own a business, the relationship between franchisors and franchisees has never been more critical. But it’s a two-way street.
First, prospective franchisees need to make a good choice in a franchise to own.
Second, franchisors need to make sure they only award franchises to the right people.
But what do franchisors look for most in a potential franchisee? I’ll tell you in this post.
3 of the Top Traits Franchisors Look for In Franchisees
1. Financial Capability
These days, most franchisors require a few specific financially related things to qualify for franchise ownership. These include:
- Net worth
- Liquid capital or liquidity
- Credit rating
Pertaining to net worth and liquidity, most franchisors I interact with require you to have a net worth of $300k of which $50k is liquid. (Liquidity = Money you can access immediately.)
With regards to your credit rating, franchisors want to see what your credit score is and see in the credit report if you have a history of making payments on time or have had to declare bankruptcy at any point.
2. Business System Followers
Franchise businesses have systems for everything from inventory management to local marketing, to point of sale (POS). And they’re proven to work through internal and real-world testing.
The franchise business model is a rigid one. It has to be. Franchising is at it’s best when it’s uniform. When every business location has a similar look and feel.
And how does that happen? Business systems and business owners that follow the system.
With that said, franchisors are looking for people who are going to follow the system. Their system, along with the specific internal business systems that are included when you buy a franchise.
The flipside of that is franchisors are not looking for people who want to invent their own systems.
To put it more bluntly: Do not become the owner of a franchise business if you want to get creative with your business.
If that freedom is something you desire, you would probably be best served to start your own business from scratch or check out a business opportunity that may afford you greater operational flexibility.
3. Positive Brand Representers
If you were the founder, the creator of a franchise concept, wouldn’t you insist on only awarding franchises to people who you feel will stand for what you have built? Of course, you would.
And when you think about it, all it takes is a few poorly managed franchise locations to tarnish a brand's image. That’s why it’s crucial for franchisors to choose franchisees who have the qualities you feel will represent your brand in the right way.
For instance, if your franchise concept is a business in the children’s sector of franchising, you’d want franchisees who love kids and want what’s best for them.
Or maybe you’re the founder of an upscale spa franchise concept. In that case, you’d want franchisees who understand the business and are comfortable working with the client base.
And if you’re a franchisor in the full-service restaurant space, you’d prefer to award franchises to people who have considerable experience in food service.
Finally, when it comes to brand representation, you need franchisees who genuinely believe in the brand. Franchisees who believe in the brand are natural at promoting it and growing it.
Why Franchisors Need to Choose Wisely -- and Why Franchisees Need to Know Too
Most the articles I write here -- and for other franchise and entrepreneurial websites -- focus on buying a franchise from the prospective franchisees point of view. I do what I do to help people who want to start a business so they can be their own bosses.
But it’s important to show prospective franchisees the other side of the coin, too.
Why should you be concerned with franchising from the franchisor’s perspective? Because it’s a relationship. And all relationships are two-sided. You need to have an understanding of how the performance of individual franchise business units directly affects the overall success of the entire franchise system.
That’s why it’s important for franchisors to only select franchisees who:
- Have the necessary financials.
- Will follow the system.
- Represent the brand in the best possible light.
In a nutshell, having franchisees who are financially qualified and who can do those things helps ensure a higher likelihood of success. In this case, at both the unit level and the franchise network level.
Because when it’s all said and done, good franchisees who are part of a good franchise system are a win-win for everybody involved.
The Franchise King®, Joel Libava, is a top franchise expert. He’s written over 2,000 different articles on franchise ownership and personally consults with people who are looking to buy a profitable franchise. Go here to find out how The Franchise King® can help you become your own boss.