Franchisee Screening Protects Franchisors and Franchisees

No Cost Protection for Franchisor

It has often been stated that franchisee screening is a “no-brainer” for the franchisor. The average cost of the franchisee screening report can be passed through to the franchisee candidate, either as part of the franchise fee or as a separate application or background check fee.

However, it is also true that too often, particularly with emerging franchise brands, the franchisor will become focused on selling franchise units, without really considering the type of person that is applying – other than do they have the financial resources to both pay the franchise fee and to launch the franchise unit.

Rather than concentrating on how much the franchisee screening report will cost, the franchisor should inquire about how to best protect their particular brand and the specific searches that will better devise a franchisee background screening report for their individual franchise brand.

Franchisee Screening Also Protects Franchisees

Individuals who invest to become a franchisee of a brand often are using much if not most of their life savings. They have a very vested interest in the success and continuity of the franchise brand they are buying into, because the long-term health of this franchise brand is critical if they are to succeed themselves as a franchisee of that brand.

When franchisees are asked to pay a fee for their franchisee background check, the franchisor can easily explain to the franchisee candidate that performing a thorough, best practices franchisee background check, not only on them but on every candidate that follows, protects their investment in the brand. A comprehensive franchisee background screening program shows that the franchisor is serious about ensuring that the individuals associated with their franchise brand not only satisfy the financial requirements, but that all franchisee candidates demonstrate that they meet the brand’s core values, as well as display a lack of any disqualifying criminal history.

The average cost of a thorough, best practices background check pales in comparison to the overall investment by the franchisee applicant. These candidates can easily understand that the additional background check fee is truly insignificant when compared to the benefits it provides, both in helping to protect their brand and their franchise investment.

List Franchisee Screening Cost in FDD

When franchisors prepare their Franchise Disclosure Document (FDD), listing either an Application Fee or a Background Check Fee will enable the franchisor to pass through the average cost of a thorough, best practices franchisee background check to the franchisee candidate. There is no need to skimp on the components of this franchisee screening report, as it should cost the franchisor nothing.

As FDD’s must be updated annually (or sooner if there are any material changes), if a brand has not included language that discloses a Background Check Fee or an Application Fee, it is never too late to do so. By updating the FDD to include such a fee, the franchisor can implement thorough, best practices franchisee background checks, and pass the cost through to the franchisee applicant. Again, when explained properly, the franchisee candidate will understand and appreciate how thorough, best practices franchisee background checks protect their significant investment in the brand, at a comparatively trivial cost.

Use a Reliable Background Screening Company

When deciding how to obtain a thorough best practices franchisee background screening report, choose a reliable background screening company that is also a reputable consumer reporting agency (CRA). A CRA understands the Fair Credit Reporting Act (FCRA), the federal law that governs all background check reports.

Franchise brands should also be wary of companies that offer low-cost franchisee screening reports as a “loss leader” for obtaining the product or service that they really are selling, such as making money on financing loans. CRAs have one focus, which is to provide background checks. They are not trying to make money on issuing loans. Their only interest is to provide compliant background screening reports.

Ask for “Soft-Pull” Credit Franchisee Screening Reports

When inquiring about franchisee screening reports, it is recommended that the credit component of the report be a “soft-pull” credit report. “Soft-pull” credit reports have zero impact upon a consumer’s credit score.

Often franchisee candidates will obtain financing as part of their franchisee acquisition process. By using a “soft-pull” credit on the franchisee screening report, the franchisor can assure their franchisee applicants that the franchising screening report will have no negative impact upon the franchisee candidate’s credit score, should they need to obtain financing subsequently.

Unfortunately, very few CRAs offer a soft-pull credit option for franchisee screening reports. Franchise brands should seek out only a reliable background screening company that is also a

reputable CRA, and which offers a “soft-pull” credit option with their franchisee screening report packages.

Posted by: Rudy Troisi, L.P.I., President and CEO, Reliable Background Screening