Screening Prospective Franchisees Before Offering a Franchise

A successful business is not necessarily one that every prospective franchisee can run well. When starting to franchise a business, owners need to distinguish between people who can afford the package and those who are ready to operate an outlet. A structured selection process helps build a healthy franchise network, reduces mismatched expectations and prevents sales teams from accepting franchisees simply to close a deal quickly.

1. Define the franchisee profile around the outlet’s needs

Start with the actual work the franchisee will need to do. If the outlet requires daily supervision, do not market the opportunity as a passive investment. If day-to-day management can be delegated to a manager, establish who will remain responsible for financial decisions, staffing and compliance with operating requirements.

Create a prospective franchisee profile covering four areas:

• Involvement: the time they can commit, where they live and their willingness to take part in preparations for opening.
• Management capability: experience supervising people, dealing with customers and interpreting basic reports.
• Financial readiness: sources of start-up funding, operating reserves and other payment commitments.
• Working style: willingness to follow the system, accept performance reviews and discuss problems openly.

Separate essential requirements from skills that can be developed. Experience in the same type of business, for example, need not always be a requirement if the training system is adequate. By contrast, refusing to keep transaction records is a fundamental problem if oversight of the outlet depends on those reports.

Use criteria directly related to the work and business risks. Avoid judgements based on personal connections or the impression that a candidate looks successful. This profile is an internal selection tool, not a guarantee that someone will succeed.

2. Check evidence, not just interview answers

Use a short initial application form to understand the candidate’s objectives, intended involvement, experience and broad sources of funding. Do not immediately ask for all their personal financial documents before establishing a basic fit.

At a later stage, verify only the information that is genuinely needed. Candidates who say they will manage the outlet themselves should explain how they will divide their time between it and any other work. If they intend to employ a manager, ask for a recruitment plan and clear reporting lines. If funding depends on borrowing, discuss how repayments will affect their ability to cover operating costs, without promising business results.

Interviews should use the same questions for all candidates, for example:

• What would you do if sales fell short of the plan?
• How would you deal with an employee who repeatedly ignored procedures?
• Who would make decisions when you were not at the outlet?
• How would you respond if a proposed product change had not yet been approved?

Include a simple case discussion based on anonymised operational incidents. The aim is to assess how candidates think, not to seek answers identical to the business owner’s. Record answers, supporting evidence and points requiring clarification separately. Restrict access to candidates’ documents to team members who need them.

3. Keep internal selection separate from legal obligations

In Indonesia, franchising is specifically governed by Government Regulation No. 35 of 2024 on Franchising, which replaced Government Regulation No. 42 of 2007. Assessing prospective franchisees is a risk-management measure; it does not replace the legal obligations of either the franchisor or the franchisee.

Government Regulation No. 35 of 2024 requires franchisors to hold a Franchise Registration Certificate, known in Indonesia as a Surat Tanda Pendaftaran Waralaba (STPW), before entering into a franchise agreement. Franchisors must also provide the franchise offering prospectus to prospective franchisees at least 14 calendar days before the agreement is signed. Franchisees must hold an STPW before starting their business.

Passing the selection process must therefore not be treated as immediate authorisation to open an outlet. Set out distinct internal stages for assessing candidates, providing offering information, signing the agreement and meeting pre-operational requirements.

Under the regulation, franchise agreements place the parties on an equal legal footing and are governed by Indonesian law. Apply that principle during selection: give candidates room to ask questions, assess the support on offer and obtain independent advice. Do not use acceptance as a way to pressure candidates into signing documents immediately.

4. Make decisions you can explain

Use three assessment outcomes: accepted, deferred subject to conditions, or not proceeding. For each outcome, record reasons linked to the original criteria. Do not change the standards simply because a candidate offers to pay sooner.

A deferred decision should specify concrete requirements, such as appointing the person responsible for the outlet or clarifying funding sources. Establish who will check that these requirements have been met. Ideally, the final decision should involve the operations team, rather than only the sales team working towards deal targets.

Once several franchisees are operating, compare the selection records with the problems that actually arise. Update the questions and criteria in light of that experience, without treating any single personal characteristic as the sole cause of success or failure.

Practical step: before accepting your next prospective franchisee, prepare a one-page set of criteria, a list of questions and a decision form. Use them consistently so that growth of the franchise network rests on mutual readiness, not simply the ability to pay.