As stated in the March 28, 2000 newsletter, over half of all new businesses fail within four years.  One study found that 95% of new businesses fail within five years. These are sobering statistics for persons wanting to start their own businesses. 

The failure rate has caused many aspiring new business owners to choose franchising as a more secure way to start and promote their enterprises rather than striking out on their own. 

Before making the decision to franchise or to start your business from scratch, there are a number of questions that need to be answered.  What is a franchise?  Are franchises the best and only way to start a successful new business?  Are there safe alternatives to franchising?  Will you earn more or less as a franchisee than you will by starting your business from scratch?  Is franchising the best way to expand an already successful business? 

To begin our discussion, let's first consider the definition of a franchise.

What Is a Franchise?

A franchise is a method of doing business by which a franchisee is granted the right to engage in the business of offering, selling, or distributing goods or services under a marketing plan or system prescribed in substantial part by a franchiser and which is substantially associated with the franchiser’s trademark, name, logo, or advertising.

There are three elements of a franchise:
1. Use of the franchiser’s name, service mark, or trademark
2. Use of the franchiser’s system or marketing plan, and 
3. Payment of a fee by the franchisee to the franchiser

All three elements must be present to meet federal and state requirements for franchises.

There are four kinds of franchises:
1. A trademark and brand name franchise
2. A product distribution franchise
3. An entire business format franchise
4. A conversion franchise with tiers

A franchisee is the person or business that has been granted a franchise.

Advantages of Franchising Your Business

There are at least thirteen advantages of franchising your business.  A franchise:
1. Allows for expansion with minimal capital 
2. Requires no contingent liability, such as leases
3. Overcomes a manager procurement problem when there is a shortage of good managers
4. Requires a franchisee to make an investment and work hard to make the business a success, because he or she has a stake in the profits
5. Eliminates day-to-day responsibility for direct management, which becomes the responsibility of the franchisee
6. Generates income for the franchiser based on the franchisee’s gross sales, not profitability; the profit and loss responsibility is the franchisee’s; gross sales are easier to monitor than profits
7. Can accomplish expansion of your business more rapidly
8. Can provide savings of product or material costs due to collective buying power
9. Can generate more dollars for national and local advertising
10. Can provide cash flow from franchise fees and royalties for development of additional company-owned units
11. Provides greater market penetration
12. Provides market saturation
13. Stimulates present employees

Advantages to Franchisees

There are at least twenty-two advantages to the franchisee.  A franchise:
1. Allows the franchisee to be his own boss
2. Does not require previous experience, in most cases, for those making career changes
3. Provides a total business concept with trademark, patents, designs, etc.
4. Is a proven system of operation
5. Has an identity
6. Is a turnkey business
7. Requires lower risk; the failure rate is only 4%
8. Allows starting a business with less capital; there is no guesswork on equipment; better prices on equipment; financing; and resalability
A franchise provides:
9. Standardized products and systems
10. Collective buying power
11. Initial training
12. Ongoing supervision and consulting
13. National and local advertising programs
14. Point of sale advertising
15. Uniform packaging
16. Ongoing research and development
17. Assistance in financing
18. Site selection
19. Operating manual
20. Sales and marketing techniques
21. Planning and forecasting
22. Inventory control 

How Successful Are Cleaning Service Franchises?

Although many cleaning service franchises are successful, some have marginal success on the franchisee level.  Their success is not the same as franchises in other industries.  One reason for this is that the franchiser, the company that sells franchises, requires a disproportionately high percentage of the monthly income, in some cases 20% or more, making it difficult for the franchisee to hire employees and earn a profit.

Another reason for the marginal success of some cleaning service franchises has to do with the nature of the cleaning maintenance industry as a whole.  For the most part, employees are working off-site, and out of sight, in client buildings and not under the continuous scrutiny of the franchisee or his operations manager.  Careful hiring practices, good supervision, benefit packages, employee buy-in to the company mission and vision statements and corporate values, employee training, and competitive wages can do much to improve the overall success of a franchise operation.  The same is true, of course, for non-franchise operations.

Is Your Business Franchisable?

There are sixteen ways to determine whether or not your business is franchisable:

1. The business must now be profitable; there is no set length of time since it became profitable, but it must be credible; it must first work for you before offering it to investors; disclosure of profitability is now mandatory; there must be enough profit for a royalty fee, an advertising fund, and for weekly or monthly royalties.
2. The business must be well organized; it needs to be tightly run.
3. It must be adaptable nationally.
It should:
4. Have public acceptance, such as through publicity write ups
5. Have a point of difference, a uniqueness.
6. Be teachable to others having a simplified training procedure.
7. Have good financial controls.
8. Be established sufficiently to be credible.
9. Have a good credit rating.
10. Be publicly acclaimed; that is, the public should be educated concerning your product or service.
11. Have reasonable cash requirements.
12. Have integrity and commitment.
13. Be easy to monitor daily, week, and monthly activity reports and profit and loss statements from long distance.
14. Have a facility and personnel.
15. Be reviewed by independent professionals, such as a CPA, attorney, and an industry consultant.
16. Have an exhaustive study or business plan prepared to determine feasibility.

Should You Consider Becoming a Franchisee or Franchiser?

There is no doubt that franchise businesses in general have a much higher rate of success.  One of the main drawbacks, however, to becoming a franchisee or franchiser in the cleaning service industry is the high cost of getting started.  A franchisee can expect to initially invest many thousands of dollars; and a franchiser or master franchise operation can expect to invest tens of thousands of dollars, perhaps one hundred thousand, or much more.

Over the years, a number of the new contract customers I have obtained have been the dissatisfied customers of franchise operations.  One franchisee, who apparently was providing quality service for his customers, called me to say that our company must have been doing things right because he couldn’t even get in to talk to our customers in an area of the city where he and we were doing business.  He said all of our customers were satisfied and wouldn’t even allow him an interview.  He was a franchisee with national name recognition and we were a locally owned and operated business with only local name recognition.  This pointed to the fact that success was not contingent upon being tied to a national franchiser.

Alternatives for Expansion

There are a number of alternatives for expansion.  One is to continue your current program.  Another is to develop a vertically integrated chain by adding company-owned operations.  Another is to form a partnership, although more difficult and slow to expand.  Another is a joint venture that is similar to a partnership.  A distributorship or dealership is a way to expand although you become a reseller of a competitor’s products or services.  A license agreement to use a trademark or name is really a franchise, and is another way to expand.  A management incentive or management contract is another alternative. 

You can start and operate your own business, the business you created and designed yourself, or you can purchase a turnkey franchise operation.  If you create and design your own business from the ground up, you have a less than fifty-percent chance of success, if you try to do it without help from industry experts.  If you purchase a franchise from one of the successful janitorial franchisers, you have a greater chance of success, but you will be sharing the profit with the franchiser.

What is the best alternative when deciding not to invest in a franchise?  The best option is to get all the information you can about the industry.  Purchase books and courses that provide solid business information, preferably ones written by authors who have been in the business for decades.  Circumspectly consider books written by professional writers with little or no experience in the industry; otherwise, you will be purchasing books on theory or books that have borrowed ideas from those in the business.

To get on the right track with your business, you will need publications with substance, books that will really help you organize and grow your business.  For a list of books and courses on the janitorial service business go to www.JanitorialBooks.Com.

Forrest L. Farmer
Publisher and Consultant
CPI Business Development Corp.
Division of Clean-Pro Industries

websites:  cpibusiness.com    and     clean-pro-industries.com
e-mail:  newsletter@cpibusiness.com
Tel:  (503) 289-0063
Fax:  (503) 289-0055