Five ways to deal with underperforming franchisees

Franchising your business is a big deal. There are many advantages to choosing this route to expand your business, but there are risks involved too. Maybe the biggest of these risks is finding the right franchisees to run profitable franchises using your brand. This is because your success relies on their success. But what happens if the franchisees that you recruit underperform?

Underperforming franchise?

Underperformance is terrible news for both you and your franchisees. For them, they risk losing the money that they've invested in the franchise. And your reputation is at risk of being damaged. Here are five ways to manage franchisee underperformance to mitigate these risks:

1. Insist that franchisees produce business plans

When a prospective franchisee decides on a brand to invest in, their first task should be to develop a franchise business plan. Not only is a plan often needed to secure funding for the franchisee but it’s also a vital part of their due diligence process.

It gives the franchisee a chance to consider the opportunities and challenges that come with running a franchise. Once the franchise is up and running, the plan should be updated and used as a guide to help the franchisee reach their franchise goals.

It’s good practice to insist on reviewing the franchisee’s business plan during the recruitment process. The benefits of this are two-fold. Firstly, a plan is a demonstration of the franchisee’s commitment to your franchise and their determination to make it a success. Secondly, it provides reassurance that your ambitions and longer-term plans are aligned with the franchisees.

By not asking to review the franchise business plan, or accepting a weak attempt at a plan, you're exposing yourself and the franchisee to unnecessary risk. This is because, without a plan, the only way that either of you will recognise that the franchise is struggling is when it’s too late to save.

2. Use the plan to monitor performance.

The franchise business plan should include financial projections for the business. Through the franchisee’s research, they will have identified achievable targets for sales and profit. To ensure that the performance of the franchise is on track, use the plan to determine when any of these metrics are falling below expectations. It's easier to intervene and offer help at the beginning of a difficult period, rather than being unaware and finding out when the business is already failing.

If at any point a franchisee refuses your assistance you may have to resort to issuing a breach notice. This should demonstrate to the franchisee that failure to meet performance targets is a serious issue and one that will be dealt with appropriately.

Hopefully taking such action would see the franchisee accept the support and guidance on offer to bring them back in line with other profitable franchises. However, if the worse happens and the franchise shows no sign of improving due to the franchisee's lack of effort or ability, then drastic action may be required. To protect the reputation of the brand, and you have the necessary funds to do so, you could buy the franchisee out before they do any lasting damage.

3. Make necessary changes little and often.

If performance becomes an issue and the franchisee is willing to make the necessary changes to improve the situation, it’s best to make small but regular modifications. This is much more manageable for you and the franchisee and will hopefully keep the franchise operating profitably.

Once the franchise is back on track, meet with the franchisee to agree to an ongoing plan to make frequent but minor changes to maintain the status quo. This level of support is likely to be viewed positively by the franchisee as it should negate the need to make significant changes when things go wrong.

4. Offer a comprehensive training programme.

One of the most significant benefits of buying a franchise for franchisees is the training and support that's provided as part of the franchise package. And it should be your top priority too. Franchising your business involves many different elements, but care and attention should be given to the training that will be offered.

The training needs to be comprehensive enough that the franchisee can confidently become one of the most profitable franchises. Unfortunately, some franchisees complete their training but fall short of the expected standards needed to run a successful franchise.

By introducing a minimum pass mark for the initial training, you could identify those competent enough to start trading. For those that aren’t ready, you could consider offering additional training or re-evaluating if they’re right for your business.

5. Develop a robust recruitment process

Possibly the best way to deal with underperforming franchisees is to make sure that you only hire the best candidates in the first place. The key to making a success of franchising your business is to create a robust and disciplined process for choosing capable franchisees.

To start with you should have an accurate profile based on the perfect candidate. You should have a good understanding of the type of person who you want to represent your franchise and the attributes they must possess. Give some thought to what experience you want them to have, whether qualifications are necessary, and what skills they should possess. Once you’ve got a clear idea of what your ideal franchisee looks like, the recruitment process becomes much more straightforward.

Also, consider setting a benchmark for each stage of the recruitment process which candidates must pass before moving on to the next step. If the prospective franchisees can prove that they have the capability and determination to move through the recruitment process, then you can be confident that they will apply the same dedication to their business. On the other hand, if candidates are unable to demonstrate that they’re suited to your franchise, it’s better to find out before the franchise agreement is signed rather than after.