by Simon Lord
last updated 23/07/2009
Home Sweet Home
by Simon Lord
last updated 23/07/2009
Ten years ago, 'home services' hardly existed in New Zealand. If you wanted an ironed shirt, you ironed it yourself. You mowed your own lawn, cleaned your own car, built your own deck and cleaned your own barbecue. The idea that you might pay someone else to do these things for you was crazy.
And ten years ago franchising barely existed here either. There were a few big names and a few more small ones, but most people regarded owning your own business as something you did by yourself. 'Franchising' was just another word for pyramid selling or some sort of scam.
Today, home services are the largest part of a healthy and fast-growing franchise sector. As more couples go out to work and leisure time becomes more precious, people who in 1991 would never have thought of getting someone else to mow the lawn or clean the house now rely on franchises to carry out many of the chores for them.
Home services are big business. Green Acres, New Zealand's largest franchise company, now has over 600 franchisees and master franchisees offering eight different services from carpet cleaning to pet care. Nor is there any end in sight to the growth. VIP Home Services, which has over 100 franchisees in home cleaning and lawnmowing, report that they have more work than people available in many areas, and are constantly looking for new franchisees. The five largest companies (Green Acres, Jim's Mowing, Mr Green, Crewcut and VIP) together represent over 1100 franchisees and yet are probably only servicing 5-8% of the available market even before adding any new services.
We thought it was time to look at the sector in detail, and to examine the issues involved in buying a home services franchise.
Buying Yourself A Job?
Home services businesses tend to fall at the lower end of the investment spectrum. This makes them affordable to more people, and lessens the risk involved. It also reduces the return, which has led some people to remark that buying a lawnmowing franchise, for example, is really no more than buying yourself a job.
'I think that depends very much on the particular franchise which you choose,' observes Estelle Logan, national franchisor for VIP Home Services in New Zealand. 'Most franchises in this industry are affordable, don't require any previous experience and actually provide good returns for the level of investment. Where they differ is in the individual style of each system. Some franchises try to do everything for their franchisees other than the work itself, which might be considered "buying a job". But others train franchisees to develop their own business skills so that they can grow the business. It's a question of which style the potential franchisee prefers.'
The majority of home services franchises quote an investment level in the $10,000-20,000 range, often plus equipment and vehicle. However, franchises such as The Spiderman or Bugs Away, which provide pest control services, are nearer to $30,000, while at the upper end companies providing specialist services such as Chem-Dry or UVTec can cost between $55,000-$70,000 to set up.
Another aspect which has encouraged many people to choose a home services franchise as their first step into self-employment is that many of the larger companies offer a guaranteed minimum income. If you are considering leaving the safety of paid employment, it makes a big difference to know that you are certain to get a minimum, say, $800 per week. However, bear in mind that this is not cash in hand - the guarantee is usually that you will be offered work each week to the value of the minimum amount, but you still have to do the work to get the money. On the other hand, you do not have to go out and do the marketing to get that work - most of the big companies will provide you with a database of existing customers to service, and will carry out sales promotion and marketing work for you.
'The other big advantage for many people is the flexibility this style of franchise offers,' Estelle Logan points out. 'It can be run from home, with all the benefits and tax advantages that offers. Running costs are relatively low as there are no large overheads. You can work the hours you want, whether that is a few hours a day or full-on seven days a week, and your income will reflect that - some franchisees start part-time and build up to full-time work. In most cases, you can also choose to work with a spouse or other relative, which appeals to a lot of people.'
What Are The Issues?
As with any type of business, there are some specific issues which potential franchisees must consider. The first is choice. Anyone looking at a home services franchise has an enormous range of services to choose from, and an equally wide range of companies.
It is important to choose a service which you will enjoy providing, which fits your lifestyle, and which provides an appropriate level of income. 'Some people enjoy ironing, for example,' says Andrew Chisholm of Green Acres. 'It is a job which can mainly be done at home, with runs at either end of the day to pick up and deliver work. The advantages are obvious.'
Equally important is choosing which company to go with. Despite the apparent similarity of service, every one has a different attitude and approach. Green Acres, for example, stresses its position as the biggest brand, and the fact that it provides franchisees with a total support package which gets their phone calls answered and all their quoting done for them by a local area manager. 'Each day, every franchisee knows exactly the jobs they have to do,' explains Andrew. 'When they're on the phone or doing quotes they're not actually earning money, so we handle all of that for them.'
VIP, on the other hand, trains its franchisees to handle their own quoting 'on the basis that they like to be more in control of their own lives,' says Estelle. 'The people we look for want to control their hours, the type and the amount of work they do.' Jim's Mowing, Mr Green, Crewcut, Home Rangers and the others also have their own cultures and, as always, it is important to choose a franchise which you feel is a good fit with your own personality.
Many home services franchises operate via an extra 'layer' of franchisees between the franchisee and the franchisor - the master franchisee. This person carries out recruitment and training on a local basis, as well as marketing and (in some cases) quoting on behalf of franchisees. It is this person who franchisees will deal with most, rather than the franchisor at company headquarters, and it is therefore important that you get along with them too.
The second issue is the franchise territory. While some franchise systems have fixed and exclusive territories, this is not always the case in home services. The reason for this is that while a franchisee may initially need a large territory from which to draw business, as he or she develops a market and a reputation they are likely to get more business and more referrals. As the franchisee only has one pair of hands, once they are working their desired number of hours per week there is business going to waste.
The way this problem is handled varies. In some cases, franchisees can employ staff, sub-contract work or split the territory and sell a portion off to another franchisee. However, a technique used in some of the larger home services franchises is called 'condensing' or 'compacting' territories: as a franchisee gets more work than they can handle, so they can cut down on the amount of time wasted by travelling between jobs. For example, if they can service four homes in a single street rather than four homes spread over several kilometres, then they can spend more time actually working - the money-making activity. They can therefore choose to concentrate on servicing more customers in a smaller area. The customers on the fringe of their territory are now a problem, so they sell those customers back to the franchisor. The franchisor creates a new franchise using those customers as a base, and they are then serviced by the new franchisee.
Another issue is the vehicle/trailer and equipment required. Most franchisors regard the vehicle as an important means of promoting the service - there is no better way of advertising than being seen outside the neighbour's house. They will therefore require franchisees to have a suitable vehicle in good condition and properly sign-written in the company's image. An alternative is to have a sign-written trailer in which all the necessary equipment is carried. All franchisors will also have a minimum level of equipment required. Many franchises have negotiated favourable rates on equipment from preferred suppliers, and some also offer preferential financing or lease arrangements.
On a personal note, prospective franchisees will need to take into account their level of health and fitness. Most home services franchisees we have interviewed over the last nine years have confessed that the first month almost killed them. 'Almost all the home services are actually very physical work,' says one home cleaning franchisee. 'You are bending, stretching, standing, lifting or pushing a lot of the time, and unless you have come from a very physical position in your previous job, you're going to suffer at first. But once you are used to it, you notice how fit you have become and how much more you can achieve in a day.'
Outdoor franchises will also be weather-dependent to some extent. Gardens grow faster in the summer and building work can be disrupted by bad weather. 'There is a definite slow-down in the winter,' says a lawnmowing franchisee, 'and you need to be prepared for it. If you can line up other gardening work such as section clearing or something for that time of year it's good, but not all franchises are flexible on this. On the other hand, the summer is so busy that it's good to have some quieter time when you can catch up - and it's an ideal time to take a holiday, of course.'
And one last issue which franchisees have to be aware of is what happens when the time comes to re-sell their franchise and move on. Most franchises impose some restrictions on re-sale (including the right to approve the incoming purchaser), but there may also be other conditions including fees to be paid to the franchisor for the costs involved in transferring ownership. 'Also, find out whether existing franchisees sell their businesses for the same amount they paid for them, whether they get a premium or whether their business is in fact worth less when they sell it,' advises Andrew Chisholm.
Who Does It Suit?
Home services franchises are most likely to appeal to those looking for a low risk route into their own business, with most franchisees never having been self-employed before. 'In fact, it's ideal for those who want to take the first step towards buying bigger franchises or businesses,' admits Estelle Logan. 'They can be taught business management skills while learning the realities of self-employment and the need to be self-disciplined. Some become area trainers or master franchisees within the same system, while others use the experience and capital earned to move on to new challenges.'
Others enjoy what they do so much that an initial two or three year plan becomes a new career. After being made redundant at the age of 49, Ken Le Comte became one of Green Acres' first lawnmowing franchisees ten years ago and he and his wife Alison are still there - last year the couple were runners-up in the New Zealand Franchise Awards. 'People think that what we do is a lawnmowing round, but it's a business like any other - we think about what we are doing and the way we do it,' he commented then.
In fact, many home services businesses are ideally suited to husband and wife teams like the Le Comtes. In some cases, one handles the operational side while the other does marketing and administration, but in many cases a franchise appeals to those looking to work together. Customers like it too. 'People like to have a couple doing their lawns,' commented Ken. 'It's reassuring.'
This style of franchise also appeals to new immigrants, who find it an ideal way to get established in this country. Strangely enough, home services franchises have not yet really taken off among younger people. Given that franchises teach practical business skills and customer service techniques while enabling their franchisees at least to earn a living, one might have expected this method of learning to have proved more popular.
What Makes A Great Franchisee?
Although many home services franchisees have told us that they never expected to be able to make so much money from providing a basic service, you will never make a fortune as a home services franchisee. On the other hand, you will never lose one either, and you won't have to invest a lot of money. For most people, such a franchise offers freedom, flexibility and lifestyle opportunities with a better than average income. Of course, some franchisees do make a lot more. Here's Estelle Logan's summary of the qualities that top home services franchisees have in common:
Attitude. Their attitude to the business, the way they approach customers, handle complaints, manage the bookwork, overcome problems, relate to other franchisees and the franchisor.
Willingness to provide the best customer service, go the extra mile, comply with the franchise system and enhance the brand, share information, look at the future and learn and keep on learning.
Appearance. Recognition that they are promoting themselves in their uniforms, their vehicle, trailer, equipment, products, quotes and invoices.
Integrity. Honesty, open-ness, loyalty, willingness to listen and follow advice, self-reliance and desire to succeed.
Semi-Independence. Willingness to work within the system but to take responsibility for growing their own business and taking ownership of it. A clear vision of what they want.
'If you have most of these qualities, you can look forward to success within a home services franchise,' says Estelle. 'If you have all of them plus commitment, communication skills and take professional pride in all that you do, you can expect to fly.'
And she adds one last word of warning. 'Remember, the measure of success of a franchise system is not how well the franchisor or master franchisee is doing - although of course they must be viable - but how successful the individual franchisees are.'
Questions To Ask About Home Services Franchise
- Do I like the culture of the franchisor? Have I met the person I would be dealing with? Is the person interviewing me going to be available for help? Do I have confidence in them?
- Do they listen to me? Are they concerned that I will fit into the franchise? Are they pointing out the negatives as well as the positives? Do they give straight answers to straight questions? Do they run down competitors?
- Will I like the actual work? Can I spend a day out with a franchisee to see if I like it? Can I talk to existing franchisees so I can ask them about the business?
- What is the initial cost of the franchise? What does this cover? What equipment will I need? How much will it cost? Can this be financed?
- What ongoing fees are there and what do they cover? Communication, advertising, referrals? Are fees calculated as a percentage of turnover or a flat fee or both?
- Has the franchisor arranged advantageous rates on equipment and finance? How about insurance, fuel, telecommunications, leasing?
- Is there a disclosure document which sets out all the financial and other important information about the franchise in a clear and simple manner?
- How long has the franchisor been operating? Is the brand valuable in my area? Will my customers know the name? Who organises the marketing? How will it help me get work?
- How long is the training? What does it cover? Customer care, marketing, accounting & legal aspects, health & safety, equipment care, business management, brand identity, ongoing communication? Do I get paid during training? Is there ongoing training? What help do I get?
- Is there a manual set which covers all aspects of operating the business? Is it regularly updated?
- Can I start part-time? Is a part-time business viable, given the fixed costs? Can I choose how much or how little work I want? Will it work around my family's needs?
- Where does the work come from? How is it allocated? Do I receive an initial client base? Do I have an exclusive territory? How does it work? Can it be condensed? If so, by whose choice? What if I get a referral outside my territory?
- What happens if I have too much work? Not enough? Is there a minimum amount of work guaranteed? If so, what are the conditions? When does it come into effect? What are the exclusions?
- How physical is the work? Is it seasonal? Is it weather-dependent? If so, how will it affect my income? Can I expand into other services of a related nature? Are there any restrictions?
- What are the conditions of the contract? Is it fair to both parties? How long is the franchise term? Do I have to pay to have it renewed?
- What happens when I want to sell my franchise? Who sells it, me or the franchisor? How is the price set? Is there a charge for exiting? Are there any penalties? Does the franchisor take a percentage, or a flat fee, or both?
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