While news around the building industry is less than inspiring, the inevitable economic downturn does not signal doom and gloom for building services. Domini Stuart finds building services may be shored up against a slowing economy.
As rising interest rates and petrol prices push up the cost of living, more householders are choosing to renovate or repair the home they're living in rather than buy a new one. There's also a well-documented shortage of people in just about every trade. Asa result, good franchisees are highly sought after. "Franchisees are extremely difficult to find in the building industry," says Adrian McFedries, managing director,
DC Strategy. "People are being paid salaries that are over the odds because they're so thin on the ground. Younger guys don't worry about getting fired because they know they'll get another job the next day."
We are also coming to the end of an unprecedented period of prosperity, growth and high employment. The combination of job security and a high salary can make it hard to take the plunge into running your own business. When times are less certain, more people are likely to consider a franchise — particularly those who find they no longer have work. While there's a lot more to being a franchisee than buying a job, some of the best franchisees are people with experience in business and money to invest following a payout. For both franchisors and franchisees, economic uncertainty can be a blessing in disguise.
"I certainly wouldn't be drawing any strong correlation between economic performance and whether something is a good franchise opportunity or not," says Adrian McFedries. "All franchise opportunities are based on the medium-term view of business. It's the same principle we see in retail — if you get in a month before Christmas you'll start off very well, whereas if you get in in January you'll have a long wait for the Christmas boom."
Magnetite The original inside magnetic window insulation system,
Magnetite protects homes from heat, cold and noise without any structural alteration.
Number of franchises: nine plus rural distribution arrangements
Started franchising: 1996
Operating in Australia since 1996, Magnetite
home services franchise has franchised outlets across five states. "We also have a distribution arrangement in rural NSW," says director Ben Lafleur.
"Under the banner 'Smart Water & Energy', we joined forces with a network of like-minded businesses offering a range of water and energy-efficient products and services. The group provides enough work to keep tradespeople busy all year, which means people in areas too thinly populated to support individual businesses have access to environmentally responsible products."
Double glazing is traditionally associated with cold climates. However, the market is growing rapidly in Australia in both domestic and commercial markets as via strive to use less power for cooling and heating.
"In Australia, 95 per cent of houses are single glazed- but a single piece of glass is a very poor insulator," says Lafleur.
Encouragingly, a growing number of councils are demanding acoustic and energy ratings for new construction, renovations and extensions, and Magnetite is poised to meet the challenge.
The Window Energy Rating Scheme (WERS) and the National Acoustics Laboratories have both shown that the system performs at least as well as many double glazing. systems white providing an easy, affordable and practical alternative.
"Magnetite doesn't require any structural changes," says Lafleur. 'We simply fit a narrow, unobtrusive frame around the inside perimeter of existing Windows, doors and skylights. An optical-grade acrylic panel then attaches to this magnetically."
In place, Magnetite is invisible from outside and virtually undetectable from the inside. "That makes it ideal for every type of window, even leadlights and windows in older. houses," says Lafleur. "We're even approved by NSW Heritage Board."
A move to franchising Big building firms used to take care of everything, employing all the people they needed to finish a job. Then came a shift towards contracting, and it's easy to see the appeal of an easy come, easy go model where people are paid only for as long as there's work for them to do. Yet, despite these benefits, experts are still seeing a shift away from contracting and towards franchising.
"Franchising is a good way of attracting and retaining the best operators, and that can be good for everyone," says McFedries. He would like to see more support for people with the skills, but not the resources, to run a successful franchise. This would include a better link between trade schools and first opportunities in business.
"One of the great challenges of franchising and, fortunately, what also makes it so successful, is skin in the game," he says.
"A lot of younger guys starting out don't have cash to put skin in the game, and I'd like to see a mechanism allowing them either to earn that opportunity or have free cash flow. I think trade schools need to think more clearly about the medium term."
Another potential benefit of franchising is in managing regulation. "One constant in this industry is a continuing increase in regulation," says McFedries. "That places a heavy burden on business; if you can retain your workforce for longer you get better continuity and don't need to train people time and time again. Franchisees share that responsibility, which is a good thing in terms of managing regulation. In the long term, it might even have an impact on the amount of regulation because it tends to grow in line with incidence.
"From a franchisees' point of view, they actually have their own business and their own assets in play. That level of commitment to a particular part of the building industry will typically deliver a stronger outcome for them."
Buyer beware One area of concern is that the shortage of good franchisees has been driving a change in recruitment practices.
"Everyone used to steer clear of talking about how much you could earn, but now we're seeing some people giving an expectation or even a guarantee," says Tim Dixon, founding director,
advisory service Franchise Works. "It's a tight market, so it's not surprising that people are beefing up their offering in an attempt to attract people. The problem is, while some are doing it properly, some aren't.
"For instance, I've seen franchises available for $20,000 with four weeks' guaranteed income of $500 a week. Alternatively, you can pay $40,000 and get 12 weeks' guaranteed income. When you think about it, all they're doing is asking you to pay more so they can give it back to you. That's something to be aware of; there's a big difference between doing that and guaranteeing quality clients for the duration of the relationship."
Dixon advises would-be franchisees to look through the promises to the reality. "Buying a franchise really shouldn't be an emotional decision," he says. "My two mantras are 'what's the lifestyle?' and 'what's the reality'?
He believes that the impact owning a franchise will have on lifestyle is often seriously underestimated, though family and social ramifications can be critical to albanchisee's success. It's also easy to adopt an overly optimistic view of how much you can earn.
"If you're looking at a franchise where 50 to 70 per cent of franchisees are earning $200,000 a year there's a good chant you will too," he says. "If two per cent are earning that much, it's human nature to think that you could too. But when you're brand new to a business, you don't yet know the tricks of the trade, you're more likely to be in the lowest quartile. Basically you should be able to give yourself a decent salary plus a 20 50 per cent return on the money you've invested in the business. In the current climate, there should be no problem with getting market share and decent growth as long as you your research."
Spanline Spanline is Australia's largest home additions building system franchise, creating a wide range of home and commercial additions.
Number of franchises: 42
Started franchising: 1987
Spanline began in 1985 when founder Tony Way developed a number (roll form machines. These formed flat steel into shapes, which would conform to a system, simplifying the building of fully engineered, strop and long-lasting structures.
While a large part of the business involves designing and creatir patios, extensions, carports and verandahs, Spanline has also expanded into commercial markets. Here, projects have included projects for the mining and railway industries and covered playgrounds and walkways for schools. Following the introduction anti-smoking legislation, a particularly popular new design is a slid roof for pubs and clubs, which you can open to create an outdooi smoking area.
Spanline is also introducing shop front display centres.
"We have 20 so far, and our plan is to have one in every city ani country town," says Way. "They create a relaxing environment where customers can see computer simulations of exactly how their home will look with the addition in place.
While it is an advantage for a franchisee to have some level of experience in either engineering or building, it may not be essential. However, all franchisees must have appropriate insurance and either the capacity to gain a Company Building licence, or to employ a fully licensed builder to supervise construction work. "The most important quality is common sense — but that's very hard to measure," says Way. His biggest challenge is keep abreast of the changing marketplace.
"We hold three training conferences a year," he says, "and we're continually teaching franchisees and their staff how to add value to their business through improved communication and service. We take our franchisees on a journey, helping I to gain the confidence to grow."
Good out of bad While nobody wants tough economic times, it's in the face of challenge that good franchise systems shine. "When times are booming, everyone can do well, but many good businesses do even better when times are tough," says Professor Andrew Terry, School of Business Law and Taxation, University of New South Wales. "While proven systems, proven training, proven relationships and proven support and service are always important, it's at times like these they really come to the fore.”
Specialist Doors & Windows Etc Specialists in the repair and maintenance of doors, windows and screens to domestic and commercial premises.
Number of franchisees: three
Started franchising: 1998
While doors and windows are generally built to last, the parts that make them work are rarely as resilient. Members of the Specialist Doors & Windows Etc franchise understand rollers, sliders, wheels and hinges; they fix creaks, squeaks, jams and rattles in everything from a sliding timber window to an aluminium door.
When Luke Keon and his partner Nick Pollard took over the business their intention was always to franchise.
"At first we just sold off the franchises and provided three months training," says Keon. "Now we employ potential franchisees for a full year so they really get to know the business, including all of the paperwork. They also have a chance to build up their tool kit rather than having to find a lump sum of $5-10,000 when they start their business."
For potential franchisees, a carpentry or other trades background is handy but not essential.
"We're also on the lookout for people who like to fix or make things, have general maintenance skills and know one end of a hammer from another," says Keon. 'The training is very thorough, and there's always back-up if you're stuck." As with any business that involves entering people's homes, franchisees also need to appear confident, relate well to their customers and have good communications skills.
"Everyone wants us there on same day so, at the moment, our biggest challenge is getting to people quickly enough," says Keon. "We try to get there within a week, but sometimes we're so busy it has to be two. The good thing is, when we do turn up, we're in the van with all the parts. If the customer is happy with the quote and wants to go ahead, we, can do the work right away."
Wet-seal Wet-seal is the only franchised waterproofing system in Australia, in providing waterproofing and sealing in domestic and commercial situations.
Number of franchises: 68 in Australia
Started franchising: 2001
The
building and utilities franchise began as a one-truck operation in Coffs Harbour in 1984. By 1999 it was a licensee business with 12 trucks, but it was to be another two years before the company decided to franchise.
"By then we knew we had strong model," says managing director Jim Child. "Now we have 68 franchises across all states in Australia and 12 in New Zealand."
While most franchisees are drawn from the building industry, others are simply good handymen — one used to be bank manager! Training includes 12 days in Coffs Harbour, learning how to apply the Wet-seal waterproofing and sealing systems in a wide range of situations. Child says that, in Australia, poor waterproofing accounts for more insurance claims than anything else.
"You have to apply it properly, you need to get the mixture right, and you have to have the right product — which is why we manufacture our own," he says. "It's also why we make unannounced checks to ensure that all of our franchisees' work continues to meet our high standards. Wet-seal is a Quality Endorsed Company, but there are some cowboys around. Getting them out of the industry is a major challenge."
Child does not anticipate that an economic downturn will have a negative impact on the business. "When fewer new houses are being built, the number of renovations increases," he says. The company also has a second string to its bow —it recently added fully installed underfloor heating to the product range.
Totalspan Totalspan is part of the Versatile Buildings group, the largest manufacturer of steel buildings in Australia and New Zealand. The range includes garden sheds, workshops, garages, barns and other rural, commercial and industrial buildings.
Number of franchisees: 37
Started franchising: 2000 in Australia (previously in New Zealand for 35 years)
Totalspan offers a complete 'do it for me' solution - everything from onsite consultations, advice on council requirements and approvals to site planning, pouring the concrete floor and erecting the building.
Nigel Butler, general manager of sales and marketing, believes the system can work well for franchisees whether interest rates are rising or falling.
"When people have more disposable income they buy toys, and then they need somewhere to put them," he says. "When they have less, they tend to go for home improvement, buying a shed for storage rather than a bigger home."
When times are tough and leads are down, the company does spend more time helping franchisees to improve their skills in conversion and communication. They also make sure offers are very competitive.
"The traditional reaction to a tightening market is to sper less on your brand," says Butler. "Our view is that this is the time you have to spend more on your brand."
Totalspan has four non-negotiable requirements for franchisees - they must be properly licensed, financially sound, have a clear credit history and have strong family a social support.
“We have very clear criteria around awarding a franchise says Paul Doran, national franchise development manager.
"Even when franchisees are in short supply, there's no point in bringing on a poor performer who will dilute and devalue the brand.
"In tough times, there's a big temptation to take the easy option, but the most important thing for everyone is to maintain the integrity of the brand."
This article appears courtesy of Franchising Magazine.
The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.22-Jun-2008