Mobile franchises are a huge topic right now and franchisees and many readers want to learn more about these unique opportunities. If you read our blog last week, you already know that this week’s post is going to be Part II of a two-part series on mobile franchises. Last week, I discussed why I believe the mobile franchise model will continue to grow in popularity. If you want to learn more about that topic, I encourage you to check out the full blog article. But this week, I’m shifting gears to focus on the four things you should know before you invest in this popular business model.
If you frequently read or listen to my blog and podcasts, you know that I spend a lot of time discussing things you need to be aware of before you purchase a franchise. In fact, one of my most popular podcasts from 2015 was an interview with attorney Cliff Ennico on that topic. I’ve even developed a free resource called What to Know Before You Buy a Franchise, which is available on the right-hand sidebar of this website. These ideas are certainly still applicable to the mobile franchise model, but mobile franchises also pose unique challenges that potential franchisees need to be aware of before making an investment decision. To me, the four most important concerns are:
- Hidden costs;
- Local ordinances;
- Newness of the franchise system.
So, let’s dive in.
In the franchise space, you should always be concerned with hidden costs. But, hidden costs can be extremely concerning for people who have been drawn to a mobile franchise due to the low initial investment typically affiliated with this business model.
If you are looking at purchasing a mobile franchise, pay attention to what you are getting for your money. It is important to have a thorough understanding of all the possible costs you might incur when starting a mobile franchise unit. So, don’t be afraid to ask questions. In doing so, think about things like:
- What kind of training and ongoing support will be provided?
- What are the costs associated with advertising, and how does the franchisor help in advertising your particular unit?
- Is there a centralized system to provide local referrals to franchisees, and if so, what costs are associated with it?
- Will you be required to maintain a storage or office facility in addition to the mobile vehicle?
- What licenses, permits, and insurance requirements are there for running your business? Do estimates provided by the franchisor seem to reflect an accurate estimate for these costs?
- How much can you expect to spend on gas while traversing your territory each month?
- What additional costs associated with routine maintenance and equipment replacement should you expect to incur over the next three years? What about five years? The term of the franchise agreement?
As with any franchise system, it is important to do your research on the costs of owning a mobile franchise. A great way to learn more about these expenses is to contact other franchisees and learn about their experiences. It is also important that you discuss costs and fees with an accountant or other advisor who you trust.
In the franchise space, one of the biggest areas of concern for potential franchisees is related to the territory of the new location. New franchisees usually want to be assured that they will receive an exclusive territory and franchisors with the most developed systems have typically spent a lot of time and money researching the best ways to define territories. But, when it comes to mobile franchises, defining territories can be particularly difficult.
Part of the problem in defining territories for mobile franchises comes from the services that your mobile franchise might offer. Some mobile franchises, such as computer maintenance and repair services, will probably thrive in a territory with a lot of small businesses or a financial district. On the other hand, some mobile franchises might do better in up-scale residential areas. Therefore, depending on the city that you live in and the industry that you wish to serve, drawing exclusive territories for franchisees may be difficult.
In addition, when looking at territories for mobile franchises, it is important to consider the overall size of the area you are serving. If the area is so compact that your market is severely limited, you may not receive enough customers to sustain your business. On the other hand, if you are responsible for servicing customers across an expansive rural population, you may spend several hours driving to appointments each day, which will negatively impact your bottom line.
Therefore, it is just as important, if not more so, for mobile franchisees to know and understand their territories. When you combine the above factors with things like local zoning restrictions and market competition, figuring out whether a territory is beneficial to you may be difficult. Therefore, it is important to talk to your franchisor and other franchisees about these types of concerns before you decide to invest.
Mobile franchisees also need to be aware of any local ordinances that may affect their businesses. Most entrepreneurs are aware of licenses and permits that are required for traditional businesses and many of these still apply to mobile franchises. Other less well-known ordinances may also impact mobile franchises in particular.
The most prominent example in the media comes from food trucks. In recent years, many cities have tried to restrict the areas where food trucks can operate in an effort to reduce crowding and traffic flow problems. Obviously, restrictions on where you can operate your business might make it harder to compete with other businesses. On the other hand, having one designated area for food trucks has helped some businesses gain popularity, particularly among the millennial generation. This example highlights the importance of understanding how ordinances can both positively and negatively affect your business.
Another example of a local ordinance that might affect your ability to operate a mobile franchise would be restrictions on parking commercial vehicles outside your residence. Some cities and homeowner associations require that commercial vehicles or trailers be parked in a garage, rather than in your driveway. Violations of these rules may result in a fine or other penalty, depending on where you live and the enforcement organization.
There are a variety of other common ordinances that may impact your ability to operate a mobile franchise. Therefore, it is important to learn more about local ordinances in your jurisdiction when you are determining whether a mobile franchise will be a good investment for you.
Newness of the franchise system:
Another common concern with any franchise system is how long the system has operated. The longer the franchise has existed, the more stable and sophisticated the system tends to be. In general, the best investments in the franchise world have a long history of success.
As I discussed in last week’s blog post, mobile franchises are growing in popularity. One downside to this is that many mobile franchise models have developed relatively recently. This newness can be concerning. While new franchise systems aren’t necessarily bad, potential franchisees should use caution because the new system has probably not been effectively tested. It can be incredibly difficult to predict what problems you may face and how the franchise system will perform over the long run.
Sometimes, the newness of the franchise system is what makes it an exciting investment opportunity. This can be especially true for mobile franchise systems that may not have been possible ten years ago. In general, it is important to weigh all the risks and benefits of owning a franchise system before you make the ultimate decision to invest.
In conclusion, this wraps up our two-part series on mobile franchises. I hope you will take the time to check out last week’s post and, as always, I hope you found this article helpful. If you are ready to speak with attorneys who are knowledgeable and experienced in franchise-related matters, visit our Contact Us page to get in touch and figure out how our office can help you achieve your franchise goals.