We all love that song which embraces freedom. Daggy? Yes, old school? Yes, but still as relevant today as it was when Willie released it in November 1980.
Move forward to 2018 and 2019 before the current COVID- 19 crisis hit and there was already significant change in the way retailers and business generally had to engage with customers due to the online environment.
Amazon came along with several other platforms that enable us to buy whatever we need or want online and have it delivered to our door!
In the last six weeks during COVID -19 working from home, I have bought all sorts of goods online from a security camera doorbell, computer supplies, pet food and even a watch from Russia! Everything has been delivered apart from the watch and some say I may be waiting a very long time for that one!
I have had my car serviced, my garden tidied and my groceries delivered all without leaving home.
My point is this, retail has been in decline for some years and consumer demand has changed yet at the same time mobile services have become more attractive and are one of the fastest-growing areas in the franchise sector.
There are already hundreds of mobile service businesses that offer anything from computer support, car repairs, home cleaning, tag testing, dog sitting, personal training, kids tutoring… and the list goes on.
Consumer demand has changed with the expectation that the business will come to them rather than the consumer having to shop around.
Mobile services mean convenience to the overworked mums and dad’s juggling their work commitments, children’s sport and other activities.
The previous concerns we all had about paying for goods online has largely been addressed although with it has come an increase in online scams and hacking – where is my watch from Russia?
So, if you are considering taking up a franchise you may be weighing up the traditional retail format franchise to a mobile franchise.
Let’s consider them here:
Retail Format Franchising
A retail format franchise requires:
- significant upfront capital investment in the range of $300,000 to $600,000.
- ongoing operational costs to lease premises, fit-out costs, staff and other operating costs from a fixed site.
- Long retail hours which in the case of Shopping Centres may require seven-day trading with little downtime for family or any social life.
- The need to borrow a substantial sum to cover the up-front capital costs and the cost of bank guarantee’s to a Landlord and a bond or retention sum to the Franchisor.
- They usually require the franchisee to be fully devoted to the business and have no other business interest without the Franchisors approval which can be restrictive to an entrepreneurial franchisee.
Financing is a huge issue facing Franchisor’s today and will be even more of a challenge in the post-COVID-19 era.
This issue has impacted on franchisor growth for existing franchisors and for new start-up franchisors and has led WFD to formulate innovative new franchise models and structures such as equity share, joint venture and Branchising models.
Mobile Franchises, on the other hand, have the following benefits:
- A smaller up capital investment which means you may be able to start earning an income without having to seek Bank finance which is difficult.
- Lower capital investment means less risk and exposure to personal assets.
- Franchise terms for mobile franchises tend to be for terms of three to five years, unlike many franchises that are for longer terms.
- They offer greater freedom and flexibility in work hours than a fixed site business.
- The franchise fee is usually the largest component of the capital cost apart from any equipment or vehicle which can be leased, and which is tax-deductible.
- Mobile franchises cost in the range of $60,000 to $100,000 and are more affordable to get into and may be easier to sell than a retail format franchise
- Any loss on the up-front capital cost at the end of the term or along the way is unlikely to break the bank or risk your home.
- They do not require you to tie up money in a security deposit or bank guarantee for the lease of premises which is a further capital cost.
- They often do not operate a Marketing fund and only require local area marketing. Marketing fund contributions in a standard franchise do not require the Franchisor to spend the money on a franchise or territory and can add another 3 to 4% on the royalty you may already be paying the Franchisor on your gross revenue.
- The Minimum performance criteria are usually kinder and therefore less stressful for the Franchisee – you can work as hard as you like or work the minimum days and hours, as opposed to a retail format.
- many mobile franchisors charge a flat fee rather than a royalty based on gross turnover. This generally works in favour of the franchisee if they operate a successful business.
- A flat weekly or monthly fee requires less reporting and audit of accounts and is, therefore, less intrusive to a franchisee.
- Not everyone will be suited to a mobile franchise and many personal factors and consideration come into play.
- No two franchise systems whether retail format or mobile are alike, so you need to really understand the offer and the opportunity, and the risks involved.
- Also, consider not only return on your investment but also return on your effort they are very different things.
- Many franchisors deliver on both (there is no guarantee of returns on investment), some provide a return on effort but not on investment and some none at all. Steer clear of the last one!
- Consider the Territory the Franchisor has to offer, is it practical is it local or the other side of town which will mean wasted travel time, the extra cost of petrol wear and tear on the vehicle.
- Ask the Franchisor about their training program and what is involved.
- Speak to other franchisees in the system to get feedback before you commit, it is too late after the event.
- A smaller investment in a mobile franchise may not necessarily mean you will be working fewer hours so ask about these issues upfront.
Above all understand that franchisors do not guarantee you will make a profit as the Courts have confirmed.
There are no guarantees and that at the end of the franchise term there may be nothing to sell, no goodwill and all you will have to sell are the depreciated value of the fixed assets.
So, before you hit the road!! seek expert advice from Franchise consultants and Specialist Franchise Lawyers who know the franchise sector to minimise the risks and make an informed decision.
Robert Toth – Accredited Commercial Law and Franchise Specialist
Member : IFLA , FCA