Turf Magazine - May, 2014

FEATURES

Crunching the Numbers

What you need to know about costs when researching franchises
By Mike Ingles


Landscape companies are beginning to offer clients a broader range of property management services, including mosquito control.
Photo courtesy of Mosquito Joe.

Franchisors require an initial franchise fee for sharing and obtaining the legal right to represent a national brand in an exclusive territory. The Uniform Franchise Offering Circular (UFOC) explains the contractual obligations of both parties, and item 11 under that contract covers what the franchisor is obligated to provide before and after a franchisee opens a location. For practical purposes, those services listed as "before" are covered by the initial franchisee fees; those services listed "after" are included in royalty fees.

The franchise fee represents only a fraction of the total outlay needed to operate a franchise. That fee normally covers the cost of joining the system, or brand, of the franchise. The remainder of the initial costs are dependent upon many factors, including whether the new franchise is a start-up operation or an established business; start-up operations often have to finance equipment, whereas established lawn care companies usually have much of the needed equipment in inventory.

Franchisors offer unique opportunities within the green industry by providing various specialty services as add-on components for lawn care companies or by providing a national brand element to existing lawn maintenance services. U.S. Lawns markets to only commercial maintenance clients including HOA's, retailers and businesses; Weed Man U.S.A. offers residential and commercial customers a four-season applications program featuring fertilization, weed control and pest management for turf; The Grounds Guys' primary emphasis is on property management for larger commercial and residential properties, providing a myriad of services including snow and ice removal; Spring-Green Lawn Care also offers seasonal application services as well as mosquito control and tree and shrub care; Mosquito Joe is a an add-on specialty service marketed as a profitable adjunct service to lawn maintenance companies; Border Magic and Boulder Design are sister franchises that also fit comfortably within the scope of lawn services companies. Border Magic builds and installs concrete edgings and walkways; Boulder Design manufactures and installs decorative concrete boulders.

U.S. Lawns' base franchise fee is $32,000. However, existing lawn care businesses might qualify for $5,000 to $10,000 in discounts based upon their existing gross revenues. The total investment ranges between $50,000 and $75,000, depending upon equipment needs. Qualified start-up applicants can arrange in-house financing for as much as 70 percent of the franchise fee on a 60-month note, and qualified existing landscape business-owners can finance up to 90 percent.

The base franchise fee covers access to the U.S. Lawns brand and all that this entails, including systems management and infrastructure for sales and marketing, routing and scheduling, job costing, financial management and employee training. In addition, the fee helps establish marketing collateral that includes brochures, pocket folders, direct-mail pieces and a stationery package.

Carol Beeler, communications/marketing manager, U.S. Lawns, says training is the key benefit. "Our franchisees receive six days of new franchise training for the start-up of their franchise. It takes place here at our home office in Orlando. We cover a wide range of topics, mostly focused on business development, bidding/estimating and the financial management pieces an owner will need to start the process of growing their business, taking it to that next level, or, for someone who is just getting started, launching their business correctly. We have an effective model to share, having over 28 years in the lawn maintenance business," she explains.

U.S. Lawns royalty fees start at 6 percent of monthly sales and declines to 3 percent based upon total revenue. These fees cover the costs of home office staff management, research and development and, most importantly, a regional franchise advisor - a mentor - to go over budgets, establish sales planning and review bids. Beeler says, "Really anything that the franchisee would have a question about in his business, the advisor will act as a liaison with corporate staff on the administrative side who can answer questions or help with technology or marketing."

U.S. Lawns territories are protected and territory size is based upon commercial density within the area and the anticipated drive time of technicians. Because they serve only commercial properties, each territory must have an adequate number of commercial accounts. Equipment requirements for start-ups include two commercial mowers, and all the two-cycle equipment and hand tools needed to operate the business.

Weed Man USA also offers in-house financing of up to $40,000 to qualified candidates for use in start-up costs, training and help with the franchise fee. Each territory is based upon geographic area and population within that territory; for a population of up to 150,000 the franchise fee is $20,000, and for those populations between 150,000 and 300,000, the fee is $33,750. The franchise fee may be discounted by 5, 7 or 10 percent based upon a scale for on-time and early payments of the fee. A total investment of $67,000 to $84,000 is required, which includes franchise fees, training, travel, computer, equipment, insurance and operating capital. A net worth of $60,000 and operating capital of about $30,000 is recommended.

Along with securing an exclusive territory, the initial Weed Man franchise fee provides for the marketing of their national brand, logos, spray systems, proprietary software and management systems, accounting package and access to corporate discounts through equipment and supply vendors.

Weed Man offers a declining-scale royalty program based on a flat rate per production vehicle. As franchisees add trucks, the percentage of revenue to royalty payments decreases falling to as low as 4.9 percent.

Roman M. Skrypuch, director of franchise development, explains why the company spreads the royalty fees over eight equal installments per year. "Starting on March 1 of every year, we set the timing of these payments to coincide with the typical application season. This is, of course, the time of year when our franchisees are generating the most income," he says.

Rebecca Jung, public relations specialist-franchising, the Dwyer Group, who administers the franchise sales for The Grounds Guys Landscape Management, Inc., explains how in-house financing is arranged. She says, "We offer financing which can cover the majority of the franchise fee for qualifying clients. We'll finance 70 percent of the franchise fee internally. Typically new franchisees will need to have accesses to capital ranging from $30,000 up to $75,000. The actual franchisee fee ranges from $27,146 to $49,008 and is based on the population in the territory purchased and available discounts."

In addition, Jung says, new franchisees need to invest approximately $15,000 to $20,000 in equipment, not including the cost of a truck and trailer, unless, of course, the franchisee already has the equipment in their present business suitable for operating their franchise.

Royalty fees range from 3 to 7 percent and cover ongoing corporate staff management support. Franchise fees purchase the annual use of the brand-affiliation and integrated systems in areas such as marketing, sales, management training, finance, recruiting, customer service and human resources.

Total outlay at Ground Guys varies greatly from $30,000 to $100,000 due to the size of the territory purchased, whether the franchisee has an established green business, and if applicable discounts apply. Jung says the company also has access to secondary financial markets for potential franchisees who find it hard to qualify for larger commercial loans.

Spring-Green Lawn Care Corp. requires franchise fees ranging from $30,000 to $40,000; the company will finance a portion of that fee for candidates who qualify. Startup costs range from $54,180 to $55,520, including $15,000 for initial working capital and includes $25,000 for a comprehensive marketing program, which is reinvested in the local franchise owner's market. In addition, Spring-Green's Marketing Reinvestment Program allows new franchisees to apply up to $10,000 of their franchise fee for marketing purposes during the second year of operations. The company will help finance existing green-industry business to a maximum of $100,000.

Along with purchasing territorial integrity, the franchise fee at Spring-Green affords franchisees the ability to interface with the company's proprietary technological platform. This software allows franchisees to compare key business performance data against established goals, as well as comparing historical performance, examining their peers' performance, financial reporting, direct marketing, national telemarketing and online marketing for webpages.

Mosquito Joe requires a total outlay of about $70,000, of which $15,000 is the initial franchise fee. This covers the costs of all equipment, including a service vehicle, vehicle wrap, vehicle shelving, backpack sprayers, chemical inventory, protective gear (e.g. safety goggles/facemask, ear protection) and marketing supplies. The initial franchise fee sponsors all startup/opening support, training, software systems, marketing/branding support and call center support. The company does not offer in-house financing, however they have two firms who can direct potential franchisees to favorable financing terms and are registered through the Small Business Administration. Net worth requirements are set at $100,000, with $40,000 minimum cash.

"The initial training is conducted at corporate in Virginia Beach, Va., and lasts four days. It covers all software and marketing training as well as in-field training, so that the new franchisee can learn how to use equipment, apply product and provide quality service," explains Angela Zerda, director of marketing of Mosquito Joe.

Zerda says the start-up investment also gives franchisees everything needed for routing and scheduling of technicians and services; systems to manage customer accounts and leads; marketing software, to make it easy to create marketing materials, as well as order materials from vendor partners; email marketing software package; a library of training materials; and additional business management systems.

The Mosquito Joe franchise fee covers the rights to an exclusive territory, based upon the number of targeted household in a geographic area. The royalty fee is 10 percent and provides for ongoing office and field support.

With more than 50 franchises in 20 states, Boulder Design and Border Magic both offer an economical adjunct into outdoor concrete edging and decorative walkways, stepping stones and commercial curbs, and through Bolder Design, installing decorative stones featuring logos, business names and addresses. Each franchise comes with all the necessary equipment to manufacture and design boulders or outdoor concrete walkways.

Total investments range from $54,725 to $77,800 per franchise with franchisee fees starting at $25,000 for Boulder Design and $20,000 for Border Magic.

Les Sander, national franchising representative for Boulder Design and Border Magic, says their franchisees are not overburdened with high percentage royalty fees. "We keep our royalty fees as a flat charge allowing franchisees to keep more of their gross - $400 a month for Border Magic, and $250 per month for the initial six months at Boulder Design after which it increases to $400 per month. We think it's a great plan."

Each franchisor offers many financing options for lawn care companies who wish to convert, or to add the franchisors' particular service package to existing businesses. Many franchisors offer deep discounts on initial franchise fees for veterans through their association with the International Franchise Association's VetFran Program.

As is always the case, carefully read the specific franchise financing information before signing a check.

Mike Ingles is a freelancer writer living in Columbus, Ohio, who writes articles about business and the green industry. Contact him at duckrun22@gmail.com.