Franchise Material?

Immediately following the tragedies of September 11th, businesses everywhere felt the economic pinch and New York City was hit extraordinarily hard. Finding work as a building service contractor was not easy, to say the least.

“Business was almost non-existent,” says Mark Rakitovan, a BSC in Queens, N.Y. “I had a very difficult time making it through the recession and lost a lot of clients. It got to a point where I started think about what would be my next move.”

Faced with the potential demise of his eight-year-old business, Rakitovan searched the Internet for other business opportunities. Over and over again, ServiceMaster Clean popped up. After extensive research and legal talks, Rakitovan decided to become a franchisee. Within three months, his business became ServiceMaster Clean by Carpet Tech.

Joining a franchise is a decision many contract cleaners consider at some point in their careers. Some see it as a good way to break into the industry while others think of it as an opportunity to revive or grow an existing operation.

Paying for the right to do business under a franchisor’s name and system is a wise decision for many people, but may not be the best move for every company or person. Before taking the leap, consider the pros and cons.

Price
For most folks, the biggest negative about franchises is the cost. There are initial start-up fees and ongoing royalty fees, which can add up to a sizeable investment.

Buying into a cleaning franchise can cost less than $1,000 to more than $30,000, depending on the amount of services and profits the franchisee expects. The ongoing royalty fee is typically about five to 10 percent of the franchisee’s profits.

“It’s a small price to pay for insurance on the type of success we have,” says Kevin Derella, vice president of divisional operations and director of corporate regions for Coverall Cleaning Concepts. “Anybody who runs any business is going to have overhead. There is some cost of doing business. Part of the management and royalty fee that our owners pay is what they would have to pay if they did it themselves.”

The tradeoff for sharing profits, franchises argue, is plenty of valuable perks. Many franchisees get training, purchasable contracts or help finding customers, free or discounted chemicals and equipment, group purchasing discounts, pooled advertising, billing and collection services, mentoring and consulting services, and more. All get the benefit of using a widely recognized brand name.

“If you think you are going to make fast money in this, you’re not,” says Anthony Long, owner of a Coverall franchise, TLC Commercial Cleaning, in Stafford, Va. “You’re not going to see returns immediately. This can be a slow-profit business. You have to think of it as an investment.”

Long started his franchise as a part-time venture while working full-time as a U.S. Marine. He started with a guarantee of $600 business a month. After two years, he was making enough to retire from the military and focus full-time on the cleaning business. Now, after six years with the franchise, he’s doing $80,000 of business a month.

Business guarantees or solid business leads are among the biggest benefits of being part of a franchise. The most difficult part of the cleaning business is finding and winning new contracts. Franchises offer a recognizable name and a proven track record, which can get a franchisee’s foot in the door and lead more quickly to new business.

“There is plenty of competition out there,” Derella says. “The majority of our competition are mom-and-pop operators who don’t have the resources we have.”

Rakitovan has seen the difference first hand. Since becoming a ServiceMaster Clean franchisee, he has seen doors open to him that were shut in his face when he was a small, independent operation.

“People who know the Service Master name, know it is a good company,” he says. “That was a big plus. I had a client who knew about Service Master and was very receptive to us. If I was independent, I don’t think we would have gotten that business.”

Many national banking, hospital, food, and other chains have exclusive cleaning deals with franchises. Some franchises also offer bundled services (cleaning, pest control, landscaping, etc.) that appeal to national accounts. These arrangements allow the local franchisee to score good-paying, steady accounts without much effort.

“More and more large companies are wanting to leverage their size and they want someone who can provide services in 15 to 20 cities and we can quote on those opportunities,” David Messenger, vice president of market development for ServiceMaster Clean. “If you were an independent company you may not get a piece of that action. We’re working at a whole different level than the local guy.”

Control
Losing the “local guy” independence means just that, losing some independence. Instead of being the top dog who calls the shots, a franchisee must learn to take directives from above. While a franchisee is an owner and does have much freedom over his local operation, the role is much less entrepreneurial than an independent contractor’s.

“You can’t have a franchise where people go out and do their own thing,” says Derella. “It’s about conformity, not for conformity’s sake but because we know it works.”

Buying a franchise is about more than brand name appeal. It also requires buying into the franchise’s system — not just how to clean but also how to market, sell, bid, and more.

“The type of person well suited for a franchise is one who likes structure and does not want to reinvent the wheel,” says Todd Hopkins, CBSE, president and founder of Office Pride. “Purchasing a franchise is good for an entrepreneur who is willing to fully, completely and consistently follow the programs of the franchise.”

For some people, being the head honcho isn’t worth the stress and workload. Rakitovan says being an independent contractor was “a lot of work.” He had to make every decision, down to which toilet-bowl cleaner to use, and found that bigger issues, such as marketing, cost a fortune and were outside his area of expertise.

“We are paying fees but in the long run it was a good decision,” Rakitovan says of his ServiceMaster Clean agreement. “We got an increase in business and there is time savings on other things, like supplies and marketing materials.”

Size
Franchises are a good option for newcomers looking for a fairly safe way to enter this industry. They can also be a good choice for small independent contractors, like Rakitovan, who have fallen onto bad times, who need some relief from the stress of doing it all, or who have hit a plateau in growth.

ServiceMaster Clean’s Messenger says are a few walls in this industry that many companies cannot overcome on their own. Some struggle at $30,000 of business a month while others have trouble getting past $60,000 a month. He says companies that hit those walls can convert to a franchise for relief.

“If we can get people over those walls, it becomes a nicer business,” he says. “We’ve been with a thousand businesses who’ve been over those hurdles, so we know how to help them do it.”

Converting an existing company into a franchise is typically best for companies with annual sales less than $1 million.

“People who are a mom-and-pop outfit, but want to be more,” Messenger says.

Companies that have topped the $1 million mark, and who have successful systems in place, may be ready to become a franchise themselves.

“Companies doing $5 million to $10 million, can probably do well on their own. They have it figured out,” Messenger says.

But don’t jump the gun. Messenger warns there is a substantial financial investment, and a lot of legal work, required to become a franchise. Running a successful franchise is also very different than heading a good cleaning company. It’s a switch from player to coach.

No matter your reasons for considering becoming a franchise or franchisee, do plenty of research and visit legal counsel before making a decision.

“It’s a big decision to make, you’re investing a lot of money,” Rakitovan. “Make sure you do your homework before you decide to make this kind of a change.”

Becky Mollenkamp is a business writer based in Des Moines, Iowa. She is a frequent contributor to Contracting Profits.