header services logo masthead
The Exclusive Magazine for the Building Service Contracting Industry Since 1981
Tuesday, 01 April 2014 11:39

To Franchise or Not to Franchise

Written by  Robert Kravitz

Weighing the Pros and Cons of Franchising for Contract Cleaners

In many ways, the employment situation in the United States has changed dramatically over the past five years. Companies that had to lay off employees during the recession have yet to hire people to replace them. Often these companies realized they could get by with fewer workers.

In other situations, companies have rehired people—but with a catch. Instead of being hired as full-time employees, they have been retained as independent contractors. This typically means they work independently, are given assignments or tasks to perform, but when these employees do the work and how much time it takes is left up to them. The employer is interested only in getting the desired results.

Another new employment option has materialized as well. Many former full-time workers have decided not to look for new employment at all. Instead, they’ve decided to start their own businesses. By doing so, in essence, they are creating their own jobs.

Go it Alone or Franchise

When they decide to go into business for themselves, people typically have two options. They can start the new enterprise from scratch, or they can purchase a franchise. What they decide to do is largely a lifestyle decision. Many people are enthusiastic about buying into a franchise, while others prefer to go it alone.

Here we’ll discuss the overall pros and cons of buying into a franchise, and where possible, we will discuss specific issues related to professional cleaning franchises. In this way, people looking to start a new contract cleaning company or current building service contractors who have thought of buying into a franchise will have a better idea of what’s involved.

Franchising History

The term “franchising” is derived from French and can be defined as holding a privilege or right. While the concept of franchising became popular about 60 years ago, it has been around much longer, as there are examples of franchising going back to the Middle Ages. However, in the United States, it is Albert Singer of Singer Sewing Machine who really established the foundation for franchising, and much of what he created is still intact today.

In order to sell and service his sewing machines throughout the country, he became the country’s first recognized franchisor. It was the only way he could think of to market his machines to a large geographic area. Because his sewing machines quickly became popular, many people were keenly interested in becoming franchisees.

However, it was not until the 1950s that franchising really took off in the United States. Some of the well-known franchises that began in the 1950s include Dunkin’ Donuts in 1950 Burger King in 1954, and McDonalds in 1955.

With a little history under our belt, it’s important to know a few common franchising terms:

  • Franchisor: This is the parent company that allows individuals to start and run a business using its systems, trademarks, products, services, etc.
  • Franchisee: This is an individual who purchases the right to operate a business under the franchisor’s business name and business systems.
  • Franchise fee: This is the initial fee paid to the franchisor to become a franchisee. In some cases, it may be the same flat fee for everyone. In other cases, including the professional cleaning industry, it can be based on territory size, population in that territory, and other factors.

Royalty fee: Most franchises require the franchisees to pay a regular fee; typically it is based on a percentage of sales.

  • In-house/third-party financing: a Many franchisors will offer some type of financing to franchisees to help them get started; however, others either do not have financing or may have relationships with banks that will expedite the loan process for the franchisee.
  • Master franchise: Franchisees can also become franchisors, becoming what is referred to as sub-franchisors. They can help set up their own franchisees in the same company, provide support, and collect royalties.
  • Length agreement: Buying into a franchise does not mean the relationship lasts forever. Typically, both parties have options for ending the agreement. However, it is not uncommon for a franchise agreement to last anywhere from 5 to 20 years.

The Pros and Cons

As mentioned earlier, whether to purchase a franchise or go it alone is basically a lifestyle decision, and in the cleaning industry, people can be just as successful with either option. As opposed to businesses in other industries, one big plus of contract cleaning is that it typically does not cost a lot to start. In fact, one of the biggest expenses may simply be having enough cash on hand to cover business and living expenses until the company starts making money.

But for those who want to embark on a safer strategy, buying into a franchise may be the way to go. There will be fees and expenses, but a quality franchisor will help provide enough tools and training so that franchisees will become successful sooner than if they foot the entire bill themselves.

One disadvantage of franchises is that there are usually lots of rules. You have to do it “their way.” For some people, the entire reason they want to start their own business is so that they can set their own rules and systems. Invariably, this comes down to structure and security versus freedom with a bit more risk: it’s a personal choice, which is why I call it a lifestyle decision.

Other than personal choice, there are some finer details to consider. For instance, some of the other advantages of purchasing a franchise include the following:

  • Bidding: Cleaning contractors are always looking for ways to bid that help them win contracts and make them enough money to have the account in the first place. Most franchisors in the professional cleaning industry will either help their franchisees with this or serve as the marketer for service in the area.
  • Name recognition: Some franchises in the cleaning industry have developed great name recognition. Some facility managers know they have worked with franchisees associated with these franchisors, and if the experience has been good, this relationship can be a major door opener.
  • Training: Many people entering the industry have little or no idea how to professionally clean. Reputable franchisors typically offer initial training and even ongoing training as part of their programs, so the franchisees perform cleaning tasks in an effective and efficient manner. This is to their benefit as well. After all, the franchisees can make or break their brand.

When it comes to the potential disadvantages of franchising, the following factors should be noted:

  • Costs: Some franchises have high initial costs and ongoing royalties. Be sure to analyze this carefully before moving forward.
  • Relationships: The franchisor and the franchisee have a relationship that can last for 20 years or more. If you are not comfortable with the franchisor now, this discomfort may grow in the future.
  • Control: Some franchisees, especially after they have been in business for a while, would like to makes changes in the ways their franchise is operated. In most cases, only the franchisor can approve what can and cannot be changed.
  • Restrictions: Some franchisors also discourage or disallow their franchisees from starting other businesses. While they are trying to protect their own interests, they may also believe this is in the franchisees’ best interests as well. However, for the more entreprenural individual, this restriction can become a problem.

Another issue that can apply to both people who start their own businesses and those who buy into a franchise is bad press. There is much greater transparency today, and facility managers are far more open about their views on the companies or products they select. If a facility manager posts unfavorable comments on social media pages for either an independent company or a franchise, it can have unfortunate consequences in the future.

However, this can prove to be an even greater problem with a franchise. For example, say a franchisee in Los Angeles receives considerable bad press. While the bad press may apply to only one franchisee in one city, it can affect the entire franchise and franchisees around the country.

Freedom vs. Security

Obviously, there are many issues to consider. One thing that is often a “pro” no matter which direction you decide to go is that individuals who work for themselves almost always say they would never want to work for an employer again. Both options discussed here allow you to work for yourself, but each one comes with varying levels of freedom and security.

Robert Kravitz has owned and sold three contract-cleaning companies in Northern California. He is now a communications professional for the industry and can be reached via his website at www.alturasolutions.com

Last modified on Thursday, 07 April 2016 09:05

Leave a comment

Make sure you enter all the required information, indicated by an asterisk (*). HTML code is not allowed.