Q: How do I convince my franchisor that I am ready to open my next unit?

If the franchisor is focused on the long-term health of the brand, it is going to make sure it makes a very proactive and thoughtful decision as franchisees move from location No. 1 to location No. 2. What you like to see is that the franchisee is very successful in the first one. It’s a domino that leads to the second one.

We typically know the things we need to know by the time a franchisee approaches us about a second location. Our field operations folks have visited. We’re getting mystery shop scores. We have a number of different touch points from which to measure how that franchisee is doing as it relates to guest service. As it relates to financially how well that first unit is performing, we, like other franchisors, require quarterly financials from the franchisee. We require year-end financial statements and tax returns.

You want to make sure the franchisee is upholding the expectation of the covenant of our brand to the guest. Normally, if he is doing a good job at that, the financial performance should follow. The second thing we want to make sure of before we approve a franchisee’s second location is that he isn’t going to hurt himself financially. If the first one is not performing well, we don’t want to pile on the troubles by approving the second location—even though it might be a good location.

Now, if the franchisee has the financial capacity and an understanding of why the first one is not performing as expected, there’s a little bit of give and take. But the bottom line is the franchisor doesn’t want to allow the franchisee to dig a deeper hole.

We do let people know if they’re not ready for No. 2. Deep down, I think, they are very appreciative that the franchisor is looking out for their interest by not allowing them to make an error that might harm them financially.

The conversation when you have to tell a franchisee that is one I feel comfortable having because I know that, even if they don’t recognize it right away, over time they realize, “Hey, I have a franchisor that really is doing what it can to make sure I don’t get harmed and the brand doesn’t get hurt by opening a unit then having to close it quickly.”

The benefit of working closely with your franchisor on the first location is that we then know where the weaknesses are. We know if your sales aren’t as high as you need them to be, we’ve got to focus on how you market your bakery. In some cases, sales might be just fine, but you might not have control on your costs. Your guest feedback and mystery shops scores might be low. That might mean an HR change on your management team. Your franchisor can usually tell you specifically what you need to address.

And there is always the infrequent franchisee who is just very difficult to deal with even if that first location is doing OK. Maybe he doesn’t communicate well. Maybe he pays his royalties late. There are always out-on-the-fringe things that go on in franchising. You don’t see a whole lot of those, but there is a relationship piece that franchisors expect from franchisees.

We want our franchisees to be in a great position as they move on to the second one. You’re going to double your complexity. You’re going to double the size of your company. You want to make sure as you move to that second location that you’re set up for success.

Your franchisor isn’t saying give up hope. It’s saying, “Let’s build that launch pad a little bit stronger and larger for you as you head off to your second location. Let’s make that launch pad strong and point it in the right direction.” That increases the probability that the franchisee might go on to open a third, fourth, and fifth.

Don’t give up. Think strategically. Fix the concerns at location No. 1 so that as you go into location No. 2, you’re in the best position possible.