Hit the Road Jack

John Di Natale, Senior Consultant, DC Strategy

If the thought of sitting at a desk or standing in a 3mx3m box selling over the counter at a shopping centre doesn’t appeal to you, a mobile business may be of interest to you.

The lure of the great outdoors is one of the appeals of a mobile business if you are thinking about investing in a franchise. There are other apparent benefits of course. Mobile businesses generally cost less to get into; the fitout and other site related costs for retail business don’t apply for a mobile operation – and those costs can be in the hundreds of thousands of dollars.

Given there are no premises, rent is not payable and overheads are likely to be much lower. Mobile franchises also generally avoid the necessity to employ additional people so the costs (and more than occasional headaches) that go with managing staff also disappear.

In the past few years, the number of mobile franchise systems in Australia has increased significantly. A mobile service is available for having your hair cut, or your dog’s hair cut if you prefer, having your tiles cleaned or your car tyres replaced at your home, your knives sharpened or an ink cartridge delivered to your door. The popularity of these types of services is growing with consumers and therefore franchisors and franchisees.

The fact that you may be investing less than the average in your franchise however, should not be a justification for short-cutting your due diligence process. As with most business decisions, there are definite advantages and there are also potential downsides and risks to be taken into account.

In general terms, a franchisor’s obligations to its franchisees are similar whether the business is a retail model or a mobile one. In assessing your mobile franchise opportunity however, there are a number of areas that warrant closer investigation as in some respects, the potential for legal issues or litigation in a mobile system is higher.

Your territory

Territories are clearly more important – and problematic – in a mobile system. If you will derive your total income from a defined geographic area, you want to be certain that area can in fact generate the necessary revenue.

One of your early tasks should be to determine the basis on which the franchisor has defined your territory. Has it simply been divided up on the basis of area and lines on a map, number of households or population...? Which of these factors are critical for the business you are buying into?

If there are 10,000 car owners in your territory, that may seem like a good number, but how many of those car owners for example, pay to have their car washed each week? How many use a full service car wash? How many are currently paying or would be prepared to pay for a mobile service to come to them? The depth of research your
franchisor has conducted and the rationale that sits behind the numbers is a critical factor.

The territory allocated to you may be exclusive or non-exclusive. In an exclusive territory, no other franchisees in your system will be able to compete with you in your territory. In a non-exclusive territory, you may be competing not only with other providers of similar services but other franchisees in your network.

It will be important for you to understand the terms and conditions relating to your performance in the territory and the franchisor’s rights should you not perform to a pre-determined standard.

Some franchise agreements entitle the franchisor to allocate work in your territory to other franchisees if you are not generating an appropriate level of income, or even change boundaries of the territory to meet changing market conditions or customer needs.

It is important to be clear on the longevity of your territory, what the expectations are in terms of performance and what the implications are if you fail to meet them.

Territories are also a limiting factor in a mobile business. In most cases you will not be able to market your services outside your territory, or indeed conduct work in another territory except in special circumstances. This has implications for you if for example, one of your clients recommends you to a friend but they live in an adjoining territory and you are forced, under the terms of your agreement to hand that work to another franchisee.

Check the details in the franchise agreement and the operations manuals for the system you are considering. A well-developed franchise system will have clear rules on how franchisees should interact across territorial boundaries.

If the nature of the business is such that it has larger accounts, a moving and storage business that serves a large corporation in a number of states for example, check to see
how these accounts are handled and how work is allocated across the network.

Will you be rewarded for securing the account in the first place? Will part of the revenue from the other States be allocated to you? The franchise system should have a clear, well- structured approach that shows the franchisor has thought through these issues in detail.

Marketing, enquiries and job allocation

One of the key challenges in a mobile system is brand building and marketing. If a business has a retail presence in a major shopping centre, it can rely on good passing foot traffic for exposure of its brand. In a mobile system, the need to be effective in building the brand through media advertising, promotion and online is much more pressing.

Check the activity planned by the franchisor to achieve strong brand recognition and look to their historic record for what they have actually done. In essence, you should be looking to confirm the franchisor’s ability to drive good quality leads to your business.

When enquiries do come in, how are they handled? Are they all routed to a central call centre and then allocated to franchisees? If so, you should understand the basis on which they are allocated and the conditions that apply when, for example, you are unable to respond to an enquiry immediately.

Regulations and operational issues

Has the franchisor considered and addressed all of the operational and regulatory issues you will face? If your mobile business involves washing something – dogs, or cars for instance – can you use the local water supply? Can you dispose of the dirty water afterwards onto the nature strip or into a storm water drain?

If say, three of the four local councils in your territory have stringent environmental or town planning rules, that has the potential to change the way your business operates and
its ability to earn revenue and profit.

If the business involves selling something from a van or truck, food or coffee for instance, it will be worthwhile checking to ensure that the franchisor has researched the policies of the local councils in your territory in relation to street vendors. Some regulations will prevent you from selling in certain geographic areas or at certain times of the day.

The franchisor’s obligation is to ensure they have clearly determined the factors that are likely to affect the performance of your business, have built the business model on realistic view of these limitations and have made your obligations clear in the process.

If your franchisor hasn’t thought these things through – or worse, if they have but don’t disclose them, you have a potential conflict and litigation scenario when things don’t go as planned.

As we’ve seen, mobile franchise businesses have their own unique advantages along with some important challenges for both franchisors and franchisees. A diligent assessment of the areas outlined here will help you determine whether you are investing in a quality business.

As always, arm yourself with information and seek commercial and legal advice from franchise specialists before making a final decision.

John Di Natale is a Senior Consultant at DC Strategy, Australia’s leading franchise consulting and legal firm. He has broad international business experience in franchising and business growth across Asia Pacific and Europe.

DC Strategy is the region’s premier franchising specialist with an experienced and respected team of franchise consultants and solicitors.

Contact John at:

Phone: 03 8615 7208
Email: john.dinatale@dcstrategy.com
Web: www.dcstrategy.com