ON THE ROAD AGAIN - MOBILE V FIXED SITE FRANCHISES

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… ..freedom from paying exorbitant rents and staff costs and you can have some 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.

The rise of mobile and home services was happening pre covid (yes, everything is now measured unfortunately 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 and click and collect. In a way Covid did many businesses a favor 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 realized that in fact, this was a more efficient and profitable way of doing business.

Employees are still working from home and the return to office has been slower than expected and so the demand for home services has remained strong as we all want our cars serviced at home, our dogs washed, our garden mowed, our house cleaned, and dinner or groceries delivered to the door.

Taking your business to the consumer's 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 

The Pros

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 round 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 whereas for a fixed site franchise it is usually the lowest cost and 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.

The Cons

Mobile work may not however suit everyone as not everyone is suited or likes to be “on the road” travelling around with the worsening traffic and cost of petrol 

Even though a mobile franchise has less up front cost (which means less risk) that may also mean a smaller income. 

A typical fixed site franchise may require investment of anything between $350,000 to $800,000, of which the franchise fee may be $40,000 to $60,000 whereas a mobile franchise investment all up may be around the $100,000 mark.

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 also a marketing fund contribution of around 2% to 5% per cent.

A mobile franchise may still charge an up front 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 has to be funded up front and 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:

1. Whether you are allocated an exclusive territory or whether the franchisor or other franchises can compete in your territory.
2. What is the franchisor's online policy as far as directing leads to you, in your territory?
3. Where is the territory allocated as to where you live – do you want to be travelling across town to service your area?
4. 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?
5. 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 it may be a lower entry costs you should still talk to other franchisees in the system to gain feedback and then do your own financial due diligence and cash flows with the assistance of your 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 and therefore you need to look at what the transfer or assignment costs are and 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 crystallize 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.