These days, the best—and most successful—brands need to ensure that their prospective franchisees have the right net worth, liquidity, credit score and more before moving on to the next stage of business ownership.
That’s why verifying assets—which is the act of confirming that the applicant has the assets they report—is more important than ever before to reduce unnecessary risks for a brand. These risks can include the franchisee failing to open their unit; a franchisee opening but having too little working capital to succeed; or, a franchisee becoming a future litigant over having been subjected to the preceding risks.
But, despite the obvious perils, nearly 74 percent of franchise executives report that they do not verify assets.
"I'm surprised that given the obvious risks, that so few franchise brands skip the asset verification step," said Jeff Panella CFE, Vice President of Business Development, with Wireless Zone. "We have a diligent process to verify the assets, and I don't know how an applicant would have confidence to join a brand that doesn't verify assets."
Brands looking to increase their franchise growth can turn to BoeFly’s Franchise Sales & Financing System, which now includes an asset verification and background check service. This gives brands the peace of mind they need, while being able to outsource such an important—but technically challenging—task. This process has an added benefit for franchisees, too. Verified franchisees can more reliably secure the small business financing they may require. When lenders engage with new franchisees whose assets have already been verified as part of the development process with the brand, the lender can race to proposal and funding. And as many tenured brand executives know, franchisee liquidity and net worth are just as important to the lender as they are to the franchisor.
"We enhanced our Sales & Financing System to respond to the needs of our franchise clients who were squandering their valuable sales resources to chase documents, or worse, brands that were all together shirking this important, but time consuming, responsibility," said Mike Rozman, BoeFly's CEO.
According to Tom Spadea, an attorney with Spadea Lignana, a firm specializing in franchise law, asset verification is a critical step for franchises—especially one like BoeFly’s, which has the added benefit of being outsourced.
"A franchisor should be just as diligent in their due diligence on their franchisee candidates as they ask the candidates to be on their system. Trusting but not verifying is a black and white exposure point for a franchisor that is hard to defend and impossible to solve on the backend,” Spadea said. “We always recommend to our franchisor clients that they need to ‘trust AND verify’ the financial position and backgrounds of their candidates. It is an often overlooked step that creates unnecessary risk for a system in the rush of trying to do a deal. An outsourced solution is ideal, creating a solid paper trail and mitigating the risk that the wrong person will get into the system."
Boston’s Pizza is one of many leading franchise brands that have realized the importance of asset verification first hand. Boston’s Pizza relies on BoeFly to verify the assets of new franchise applicants as part of their new development process. In doing so, they’re ensuring that potential franchisees meet the brand’s liquid asset and net worth requirements.
“Establishing an asset verification procedure with BoeFly has proved to be a crucial and invaluable step in helping us not only confirm the financial viability of potential franchisees, but also gain the comfort and confidence we seen to move forward with a new partnership,” said Rick Lauro, the Vice President of Finance at Boston’s Pizza.