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INCOME

An income guarantee can provide a sense of security for new franchisees while they establish their new business.

It is important before signing up to a franchise to understand exactly what is being offered, whether it is turnover or leads related, and appreciate any time and performance limitations.

What is an income guarantee? It sounds like a promise of a set amount of revenue to your business, but this can take many forms.

For instance, an income guarantee could be the franchisor’s commitment that if a franchisee doesn’t reach an expected revenue level within a set timeframe, the franchisor will top up the income to the benchmark amount.

Of it could be a salary provided by the franchisor to the franchisee as they build up their business.

Another version could be a set number of leads to convert, or existing business contracts to fulfil, which should provide the franchisee with a certain amount of revenue.

Of course, there are caveats with an income guarantee, as with any element of small business. Lawyer Robert Toth cautions prospective franchise buyers to do their homework on any income guarantee and to seek legal advice before accepting it.

“They can often be tied to certain pre-conditions that cannot be met, which may make the guarantee useless. This may make it also an unfair contract term and be misleading conduct, so check the fine print.”

Here are some brands who offer new franchises an income guarantee.

JAMES’ HOME SERVICES

Rhiannon Simcocks, national operations manager, explains the deal.

“We offer a $1000 per week income guarantee for the first 12 weeks. It is conditional upon the new business-owner adhering to our systems and procedures, and implementing the training and actions that we consider is our ‘business as usual’.

“These include marketing time spend targets, following our quoting system as trained and responsiveness to enquiries received.

“The conditions are our expectations for how the business is run ordinarily, so we see that implementing the income guarantee can actually assist the new business-owner to set great business management habits from the start.”

Rhiannon says some, but not all, new business-owners will take up the income guarantee.

“Of those that do, we find that perhaps we top up a little of their income in the first and second week, then after that, we hardly ever have a call on the income guarantee.

“We set new business-owners up with a dedicated advertising package for their territory as well as a suite of marketing collateral and the training on how to market their business effectively (all included when you purchase a James’ Home Services business).”

The business also utilises other strategies to drive enquiries to new business-owners.

For James’ Home Services franchisees, much of the work can come from repeat customers (particularly for Interior Cleaning and Lawn Mowing & Garden Care) and that makes it all the more important to secure the right customers early in the business.

It can mean a weekly service, and once these build up there’s a level of certainty about the weekly revenue.

“We also offer weekly mentoring for new business-owners to ensure we are building on the initial training they undertake, and genuinely continuing to expand their business management skills,” says Rhiannon.

So why does the franchisor offer this income guarantee?

“We recognise that for a lot of our new business-owners, they are leaving full-time employment, where income each week is certain. So we can appreciate the uncertainty that starting your own business may bring, particularly for those with family and mortgage commitments. “We focus on finding new business-owners who are a great fit for our network and culture, who are prepared to work hard and follow our proven systems, and who we believe have the drive to make their new business work. “If we find that right person, we are only too happy to help remove some of those initial fears and barriers to starting their own business with us. Additionally, we know that the training, support and marketing that we offer can, and does, get our new business-owners off to a strong start; we back ourselves and we are experienced in helping small business-owners to get started effectively.”

URBAN CLEAN

An Urban Clean franchise can be started as a part-time after hours business. It is an ideal business for anyone wanting to continue their daytime career or transition gradually from a job to operating a business full-time.

Included in the franchise is an initial set-up of $5000+GST per month worth of cleaning contract revenue.

Founder Damien Boehm says, “Franchisees who join our system at the full investment of $31,700+GST also receive a cleaning contract guarantee and warranty.”

He explains how the guarantee works.

“If, after the fourth month upon completion of training, we weren’t able to secure the $5000+GST per month set-up, we will pay the difference each month up until the original investment.

“Additionally if the contract revenue falls below $5000+GST per month within the first 24 months of a franchise’s business, due to a client closing down or moving premises, we will replace the contract value up until the original $5000+GST per month.

“Like anything in life, there are conditions to these guarantees, but they are easily met by following the steps in the system,” he says.

The $5000 set-up and guarantee is all about providing peace of mind for new franchisees and getting them to a good space to expand their business.

“Many franchise partners [are] growing their part-time business to multiple six figures of income,” says Damien.

HIRE A HUBBY

Brendan Green, Hire A Hubby CEO, says the brand’s income guarantee is designed to be a security blanket.

“All income guarantees are for 12 months and work on gross profit figures.”

Hire A Hubby has bronze, silver and gold territories, allocated according to the potential of the average person going into a territory, and each has a set income guarantee.

“If you meet the criteria, at the top end it is $125,000 for gold, and $100,000 for bronze. That’s $500 a day in gross profit.”

Brendan is confident the franchise’s systems, if followed, can produce the minimum figures.

He is also clear that this is a stop-gap procedure, not something that franchisees can learn to rely on. “This is a top up, not a gift. This is not a chance to sit back.”

It is crucial franchisees appreciate the need to do the hard work in building the business themselves and understand they are “fully supported”, says Brendan.

The guarantee was introduced 20 years ago in a much looser form than it is today. Lessons learned over the years brought a tweak of the process, providing some working conditions such as franchisees being available weekdays between 8 am and 6 pm, and an occasional Saturday; taking on new opportunities; following local area marketing initiatives; and notifying the franchisor on a specified day that upcoming bookings are low.

“These are not hoops you can’t jump through,” says Brendan.

There is a weekly basis for the top up, allowing franchisees to keep trading. Many have to buy materials for real estate jobs but are not paid for 30 days.

“This is a way to top up to give them the confidence that what they thought was a benefit proves to be a benefit.”

Unlike some income guarantee packages, this is not optional – it’s included in the cost of every new franchise. And that has meant a more stringent approach from the franchisor in selecting sites.

“We won’t sell a location anywhere we can’t meet the guarantee. We’ve been a lot more selective about this,” he says.

And despite the standard inclusion the take-up of the guaranteed income is very low, says Brendan.

“I’ve got one out of 29 (new franchisees) relying on it.”

Other brands offering income guarantees:

OVEN VALETS A mobile hands-on oven and barbecue cleaning business using non-toxic and non-caustic cleaning products. The business owners pride themselves on professionalism, and offer an income guarantee on a case-by-case basis.

WHAT ABOUT A SALARY GUARANTEE?

Some joint venture businesses which operate on a 50/50 basis with franchisees commit to a salary package for franchisees, to allow them to make the move from a corporate world and focus on building up the business with reduced revenue pressures.

THE LOCAL GUYS An electrical test and tag business operating across Australia for more than a decade. The franchise costs $24,900 for a seven-year term with business training and includes taxes, sales generation, accounting and invoicing. To help franchisees get started there’s a $50,000 income guarantee for their first year in business.

LOCK & ROLL At Lock & Roll, a specialist window and door repair, maintenance and upgrade business, franchisees can expect to pay a $40,000 franchise fee and the cost of a van to get established. An income guarantee for the first 12 weeks is designed to assist newbie franchisees establish themselves.

JIM’S MOWING The franchisor’s Paid for Work Guarantee (PfWG) is available to new franchisees as a safety net. In the early stages of a franchisee’s business, in return for servicing qualified prospective clients for free or at a discounted rate, the franchisor will pay franchisees for their work.

WHAT YOU NEED TO CHECK ABOUT THE INCOME GUARANTEE

Speak to new franchisees about the guarantee – is it working for them, are they getting what was promised? Find out how easy it is for franchisees to build up their own database of clients within the guarantee timeframe. Check with the franchisor what actions or performance levels you have to take or achieve to get the guaranteed revenue. Get a franchise-friendly accountant to check the figures and see that the deal is financially viable.