Ahh mobile franchises, that feeling of freedom not tied to an office or retail store, off to the next appointment, wind in your hair dog in tow no need to pay exorbitant rent and staff costs.
Mobile franchises are a great option and mean you can work as hard or as little as you like.
They are a low-cost option compared to a full retail franchise and can still deliver a reasonable return on your effort and hours worked due to the lower overheads.
They may not suit everyone and there is an emergence of mobile franchises on the market to choose from, but you still need to choose wisely.
I can get my lawns cut, my hedge trimmed, my car repaired, house cleaned, and dinner and groceries delivered to the door.
For any business taking your business to the consumer is a great way to generate work without carrying the huge overheads of a fixed site and provides convenience to overworked families and people working from home under work pressure.
The benefits of mobile franchises
Mobile franchises require much smaller up front capital investment and are generally more affordable
They also offer greater lifestyle and work life flexibility than a traditional site-based franchise.
They are generally owner operated so you do not have staff costs and having to manage staff and of the add on costs of employees.
The franchise fee for a mobile franchise is usually the biggest cost apart from the need to lease a vehicle, branding and equipment costs whereas for a fixed site franchise the franchise fee is usually the lowest cost and the investment in stock and shop fit out, lease costs, staff costs and insurance can be considerable. On top of that you need more working capital.
The ongoing operational costs are also generally much lower with a mobile franchise depending on the nature of the business.
Mobile work may not however suit everyone as not everyone likes to be “on the road” travelling around from one suburb to another.
Even though a mobile franchise has less up front cost (which means less risk) that may also mean a smaller income or return.
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 $60,000 to $100,000 mark.
Some mobile franchises elect to charge a fixed monthly royalty rather than a royalty based on the gross turnover of the business, which can be positive if the business is successful and growing but a fixed monthly royalty can become just a debt owed to the franchisor if the business is not successful.
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% per cent and with a mobile franchise it may be a higher royalty on the gross revenue with just obligations to do some local area marketing.
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.
The other key issue is that generally a mobile franchise will have limited stock holding as opposed to a fixed site franchise. The stock has to be funded up front and the working capital for a fixed site franchise over the first six or twelve months of operation will be much greater.
What to consider when looking at a mobile franchise
Here are some key things to consider:
- Will you get an exclusive territory or can the franchisor or other franchisees compete in your territory.
- What is the franchisors “on line” policy as far as directing leads to you, in your territory?
- Is the territory allocated close to or where you live ? You may not 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?
- 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 cost you should still talk to other franchisees in the system to gain feedback and 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 there may be no or very little goodwill at the end.
Training and support
You should ensure that the franchisor provides adequate training up front and ongoing training and support and they have the latest booking and CRM software for ease of bookings and payment.
There is really no excuse these days for outdated systems and software.
Does the franchisor have a social media presence and are they on Instagram and other social media promoting the business and brand compared to the competition?
Your exit plan
One thing with all franchises is that they have a “life span” after which you will want to sell and exit.
Most mobile franchises have a limited life span of maybe 3 to 5 years so you need to look at the transfer or assignment costs when you sell, restrictions on selling the franchise and the 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 advisor to limit your risk and you can make an informed decision before you commit.
Robert Toth is Special Counsel and Accredited Commercial Law and Franchise Specialist at Sanicki Lawyers, with over 35 years of experience in franchise, licensing and distribution law and regularly publishes articles on line.
Robert acts and advises many overseas companies and also is a resident director for overseas companies and on the Advisory board of a number of client entities.
Sanicki Lawyers 03 9510 9888
robert@sanickilawyers.com.au
Mobile 0412 67 37 57
www.sanickilawyers.com.au