ON THE ROAD AGAIN: Mobile v Fixed Site Franchises
Can you imagine Willie Nelson happily running his mobile franchise? Wind in his hair, guitar in hand… Mobile franchises can be a good option to the free spirited person who does not want to be tied down to a shopping centre environment, working nine to five. Thanks Dolly!
There is an emergence of mobile franchises on the market with the demand for home services.
We all want our cars repaired at home or work, our dogs washed and taken for a walk, our laundry done and our personal trainer knocking on our door. Consumers have the money to spend on home care and support like in no other decade. Mobile services mean convenience to the overworked Mums and Dad’s out there.
Mobile franchises have a smaller up front capital investment and can offer greater flexibility than a full retail franchise. It may not however suit everyone being out on the road. The franchise fee in a mobile franchise may be the largest component of the upfront cost, whereas for fixed site franchises it is usually the lowest cost due to the equipment and fitout costs required. A typical fixed site franchise may require investment of anything between $600,000 to $800,000, of which the franchise fee would constitute, for example $45,000.
There may be franchises that charge a fixed royalty, payable fortnightly or monthly, not tied to turnover. 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 per cent with a marketing fund contribution of around 2 to 5 per cent.
A mobile franchise may still charge a 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 interest on the lease is tax deductible to the business.
Fixed site franchises generally require the franchisee to hold stock and therefore require greater working capital over the first six months or year of operation. A mobile franchise may involve an investment of $50,000 to $70,000 but will it generate a basic wage and for how many hours worked? Where is the territory that is allocated? Do you have to travel long distances to service clients for a small charge?
You still need to do your financial due diligence and cash flows on the business. If the numbers don’t work, then don’t commit as mobile franchises can be difficult to sell. Buying a mobile franchise or a fixed site franchise usually requires the franchisee to borrow on the equity in their home. Like any business, this carries risk. Will the business be viable? Can it provide a reasonable salary for effort to the operator? Will it provide a return on the investment over time and also build some capital value?
The rise in mobile franchising has come with the increased consumer demand. Consumers have limited time and from a marketing perspective taking your business to the consumer into their home or office is a great way to generate work without carrying the huge overheads of a fixed site.
There can however be issues as to the quality of the service provided with mobile services as opposed to a fixed site business. Mobile franchisees should ensure they receive adequate upfront training upon start up. They should also ensure customer service is monitored for repeat business and that the franchisor provides ongoing training and development.
Prospective franchisees looking for a mobile franchise still need to be cautious and do their due diligence on the Franchisor. Is it a fad, the demand for which is not sustainable? What are the expectations for hours to be worked? A lower start up investment doesn’t mean you may be working any less hours than in a fixed site. Can you separate the business from your personal life? If things don’t go as planned it can be difficult to get out and sell a mobile franchise. There may be little goodwill and all you have to sell are the fixed assets.
So before you hit the road or stay put, do your analysis and get expert advice from specialist franchise lawyers and advisors to limit your risk and make an informed decision before you commit.
Robert Toth is a Partner of Marsh & Maher Lawyers, with over 30 years of experience in franchise law.
He is an Accredited Business Law Specialist with expertise in franchising, licensing and distribution and franchise dispute resolution (acting for both international franchisors and franchisees).
03 9604 9400