Ahh, mobile franchises, the wind in your hair as you drive to your next appointment in your branded van with a dog in the back, the freedom from paying exorbitant rent and staff costs, and the possibility of work/life balance. Mobile franchises are a great option… or are they?
There is an emergence of mobile franchises on the market which have certain benefits over the traditional high-cost franchises that we see in shopping strips and shopping centres. However, the rise of mobile and home services was happening pre-Covid (yes, everything is now measured by pre- or post-Covid)!
Covid drove businesses to move online quickly to survive and provide their goods and services to their consumers via door-to-door delivery and click and collect. In a way, Covid did many businesses a favour as it forced them to go online and update their systems.
The demand for courier drivers, food delivery, and other home delivery services exploded, and then businesses realised that in fact, this was a more efficient and profitable way of doing business.
On the other hand, employees are still working from home and the return to the office has been slower than expected. The demand for home services has however remained strong as we now want our cars serviced at home, our dogs washed at home, our garden mowed at home, and our dinner or groceries delivered to the door.
Taking your business to the consumers’ home or office is a great way to generate work without carrying the huge overheads of a fixed site. Consumer spending is now driven by convenience and instant gratification!
Mobile services mean convenience to overworked families and people working from home under work pressure.
The Benefits of Mobile Franchises
Mobile franchises require a much smaller upfront capital investment and are generally more affordable.
They also oﬀer greater lifestyle and work/life balance ﬂexibility than a traditional site-based franchise.
They are generally owner-operated so you do not have staff costs and the issue around staff management when operating a retail site.
The franchise fee is usually the biggest cost apart from the need to lease a vehicle, branding, and equipment costs. Comparatively, a ﬁxed site franchise is usually the lowest cost but the investment by the time you add stock and shop fit-out, bank guarantees on a lease, staff costs, and insurance can be considerable.
The ongoing operational costs are also generally much lower with a mobile franchise depending on the nature of the business.
Mobile work may not suit everyone as not everyone is suited or likes to be “on the road” travelling around with the worsening traffic and cost of fuel.
Even though a mobile franchise has less upfront costs (which means less risk) that may also mean a smaller income.
A typical ﬁxed site franchise may require an investment of anything between $350,000 to $800,000, of which the franchise fee may be $40,000 to $60,000. Although a mobile franchise investment in total may be around $100,000.
Many mobile franchises elect to charge a ﬁxed royalty rather than a royalty based on the gross turnover of the business.
This can be positive if the business is successful and growing but can otherwise be a ﬁxed cost that becomes a debt to the franchisor, irrespective of the franchisee’s revenue.
Fixed site franchises generally charge a royalty, based on the turnover of the business of between 4% to 10% of gross turnover (revenue) and a marketing fund contribution of around 2% to 5%.
A mobile franchise may still charge an upfront franchise fee of $20,000 to $30,000, plus the cost of the vehicle and equipment. The vehicle and equipment can usually be leased, thus reducing the capital outlay.
Fixed site franchises also require the franchisee to hold stock so that must be funded upfront. Evidently, the working capital requirements for a fixed site franchise over the first six or twelve months of operation will be much greater.
What to consider
The things to be considered are:
- Whether you are allocated an exclusive territory or whether the franchisor or other franchises can compete in your territory.
- What is the franchisors on line policy as far as directing leads to you, in your territory?
- Where is the territory allocated as to where you live – do you want to be travelling across town to service your area?
- Do you have to travel long distances within your territory to service clients for a small fee in which there may be little profit for you?
- Can you still take time off and have a break without impacting on the business if you are a sole trader?
Do the numbers
Even though a mobile franchise may offer lower entry costs, you should still talk to other franchisees in the system to gain feedback. We also advise that do your own ﬁnancial due diligence. You should assess your cash ﬂows with the assistance of an accountant and financial advisor to see if the business is sufficiently viable to at least pay you a reasonable salary.
If the numbers don’t work, then don’t commit, as mobile franchises can be diﬃcult to sell.
You may also need to accept that by taking up a mobile franchise, you will be doing nothing more than taking a salary and that there may be no goodwill value at the end so you may not sell the franchise for a capital gain.
Training and support
You should ensure that the franchisor provides adequate training up front and ongoing training and support and that they have the latest booking and CRM software for ease of bookings and payment.
There is really no excuse these days for outdated software.
Does the franchisor have a social media presence and are they on Instagram compared to the competition?
Your exit plan
Most mobile franchises have a limited life span. You should therefore be aware of any transfer or assignment costs are, any restrictions on selling the franchise and any non-compete clauses that may restrict you from setting up in competition.
If things don’t go to plan, it can be diﬃcult to get out and sell a mobile franchise and you may still crystallise a loss if you walk away during the franchise term.
So, before you “get on the road again” like Willie Nelson did back in the 60’s, do your analysis and get advice from your specialist franchise lawyer and financial advisors to limit your risk so you can make an informed decision before you commit.
We have over 35 years’ experience franchise, licensing and distribution law.
If you would like further information on franchising, contact Robert Toth (email@example.com) or Kristen Attard (firstname.lastname@example.org) or call us on (03) 9510 9888.