Business Franchise Australia

Affordable Franchises in your price range

There are so many low-cost franchises on offer in the sector these days that may be attractive to someone who has been made redundant or just tired of their existing career path. 

You may want to be your own and have some flexibility in the hours you work. Many of these franchises are home services or mobile franchises. You may picture yourself in your own van, wind in your hair, dog in the back coffee in hand heading off to your next job rather than being tied to a retail shop or office.

Many of these franchise opportunities are also affordable and you don’t need to mortgage your home to get into one.

The full-fledged franchise with a retail footprint can set you back from $300,000 to $600,000 with all of the start-up costs. A big investment and a big risk! 

An affordable franchise such as a mobile franchise in sectors such as lawn mowing, home maintenance, car repairs, house cleaning, roof cleaning, courier services or home care are generally lower cost and means you don’t have to mortgage the house to enter into it.

These franchises also avoid large, fixed overheads such as rent, and staff costs as opposed to a owner operator mobile franchise.

A low cost or mobile franchises can be a great option for many people !

Recent events such as business closures redundancies and cost of living pressures have in fact boosted the interest in franchising and many fixed site franchisors realised that they can cut overheads and be more profitable without fixed premises!

We are seeing a “franchise frenzy” across the whole franchise sector particularly  at the low-cost franchise model end, but there are still risks  involved and franchisees need to do their research and choose wisely.

Benefits of a low cost /mobile franchise

There are a great many benefits to taking up a low cost /mobile franchise as opposed to a fixed site franchise which includes:

  • Avoiding the high up-front costs of a retail franchise such as occupancy costs and security deposits -rent and rates ;
  • Usually only modest stock levels are needed as opposed to sock in a fixed site;
  • Often there is no need to employ other staff;
  • Flexible work hours; 
  • Operational costs are generally lower;
  • Less working capital needed for the first 12 months of operation
  • Social media marketing for leads.

 

Taking  the business to the consumer’s home or office is also a great way to generate work and build the  brand in the market and utilise marketing via social media and Instagram.

The size of the franchise market

The  Franchise sector has over the last 5 years grown at 2.4%  to around $169.5bn.

The mobile franchise sector accounts for a large share of this revenue which makes sense when you consider the huge array of mobile franchises on offer from Jim’s Mowing with over 1,500 franchisees, VIP Home Services over 1,000 in (AU + NZ),  Cleantastic over 900, couriers such as Aramex (ex-Fastway) 900+, Couriers Please over 700 and  Hire A Hubby with over 300 franchisees and the list goes on. 

While many large format franchised business profits are down due to increased operational and supply costs the good news is those same cost pressures do not impact as greatly on the smaller franchises although with inflation and higher interest rates and cost of living  pressures  we are seeing an increase in business insolvencies.   

Enough of this doom and gloom!!  

With change comes opportunity and as some businesses fail this can open up the same market to a successful brand or operator who can pick up greater market share !

Mobile and fixed site franchise costs

Let’s talk real dollars ! Ok here comes the song reference, which had to come there are no lack of songs about money here are my top 3 Jame Brown –  I got Money, Pink Floyd – Money and Abba- Money Money Money  .…Abba liked to keep singing it and it seemed to work for them! 

With a mobile franchise, the up-front franchise fee is usually the biggest cost (it could be as low as $8,000 up to $25,000.00 apart from the need to lease a vehicle, branding and equipment costs. 

Franchise Fees

The Franchise Fee is the upfront Fee charged by the Franchisor for the grant of the rights.

The trend has been for Franchisors to reduce this fee to make it more attractive to franchisees due to the competitive franchise market.

The Franchise Fee for a  mobile franchise may be as low as $15,000 and up to $30,000  so the overall cost to set up and run a mobile franchise may be in the range of $60 to $100,000 (high end) to get moving. The vehicle and equipment can usually be leased, which reduces the up-front capital outlay.

The Franchise Fee for a fixed site franchise may be $30,000 to $80,000 plus fit out costs, stock and a myriad of other costs so the start-up costs could be well over $200,000.00 up to $350,000.

Even though a smaller low cost or mobile franchise has less up-front cost (which means less risk) that may also mean a smaller income or return. You could be simply  buying yourself a job and there is nothing wrong with that of course if that is your intention. It just may be that you do not then have a capital asset or much goodwill to sell when you want to exit.

Ongoing Fees – Royalties and marketing

Some mobile and small franchise systems charge a fixed weekly or monthly fee instead of a  royalty based on gross turnover which for a fixed site franchise can range from 6%  to10%  plus a marketing fee of between 2% to 4% .

Therefore, the amount  payable from a franchisee’s gross turnover (not their profit ) can range from 10%  up to 14% all up.

A weekly  fixed fee with a smaller franchise can be positive if the business is successful and growing but can otherwise be a fixed cost that becomes a debt to the franchisor if you are not actively working the franchise.

The working capital requirements for a mobile franchise are also more cash flow affordable than for a fixed site franchise over the first six or twelve months of operation . 

All in all, a low cost or mobile franchise may be a great option but it won’t suit everyone.

Things to look out for :

  1. Will you get an allocated and exclusive territory, or will the franchisor or other franchisees  be able to sell to customers in your territory?
  2. What is the franchisors “on line” policy as far as directing leads to you, in your territory? Is it fair and clear how that works?
  3. Is the territory  near where you live? as travelling across town to service your territory may become tiring and costly.
  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 in each job?
  5. Can you still take time off and have a break without impacting on the business if you are a sole trader?
  6. What is the franchisors policy if you want to go on leave?

 

Do the numbers work?

Even though there may be lower entry costs you still need to 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 dicult to sell.

As I said you may be buying yourself a job  but you need to ensure you can take a reasonable salary for your effort along the way. There is always a risk that at the end of your franchise term you have nothing to sell .

The new Franchise Code that kicks in in April 2025 will benefit franchisees as it further restricts the ability of a Franchisor to enforce any non compete or restraint of trade at the end of a franchise term.

Training and support 

You should ensure the franchisor provides you 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 franchisors having outdated software or  a franchisee having to  fax sales details at the end of each week! 

We are living in a new digital age and if the franchisor is not up to speed with technology I would move on!

Does the franchisor have a social media presence, and do they charge a marketing fee  which is spent on misplaced and expensive advertising, that’s not really that effective?

Talk to other franchisees in the system to get a gauge on their happiness level with the franchise and its support. If the feedback is negative that’s a red flag. 

Your exit plan

Most mobile franchises have a limited life span of say 4 to 6 years after which you will likely want to move on, therefore, you need to look at what the transfer or assignment costs are and any restrictions on selling the franchise and any restraint clauses that may restrict you from carrying on a similar business when you sell or get to the end of your franchise term.

If things don’t go to plan it can be dicult to get out and sell a mobile franchise and you may still crystallize a loss if you walk away during the franchise term. 

There are lots of tricks and traps when looking to become a franchisee so before you get on the road again get advice from a Franchise Law Specialist who is a member of the FCA as we know the good, the bad and the ugly in franchising. 

That way you will limit your risk and make an informed decision before you hit the road!.

 

Robert Toth is Special Counsel and Franchise Specialist at Sanicki Lawyers with over 35 years of experience in franchise, licensing and distribution law.

Robert is also an Accredited Commercial Law Specialist and regularly publishes articles on franchising in Australia and overseas journals and acts for a number of overseas, local and master franchisors and acts in dispute resolution and mediations.