How To Finance A Cleaning Service Franchise

guide to starting a cleaning business

An analysis conducted by Franchise Help found out that in 2015, the cleaning industry generated over $50 billion in revenue, and that there were nearly 900,000 businesses in the industry employing 3.5 million people. Clearly, this is an in-demand industry with both businesses and individuals willing to pay top dollar for these services.

So, if you’re looking to start your own business or buy into a franchise, the cleaning industry may be the perfect chance to start off your journey and set your own schedule.

 

What are the available options for financing my cleaning business?

Cleaning service companies, unlike many other franchise options, tend to have significantly lower starting costs compared to other industries. This ideally makes it easier for business owners to acquire the necessary funding and liquid capital to start their business.

Franchisor financing: some companies do provide financing to budding franchisees. In that case, if there are financing options for the cleaning services you’re looking to franchise, it’s advisable to explore all of them. Keep in mind that there are companies that give great discounts to veterans and minorities, and you don’t have to shy away from talking to your franchisor about reduced rates.

Term Loan: Term loans typically have secured and unsecured options. You’ll have to decide whether you want to put up collateral to receive funding. Some of the franchise business loans let you borrow against the value of the company that you’re looking to buy into, and you can acquire about 50% to 70% of the value of the business.

SBA Loan: SBA loans are usually backed by the government. Although they are generally tough to qualify for, they often come with lower rates compared to similar loans from banks and other financial institutions.

Vehicle Loan: In some cases, the franchisor might not be able to cover the van you need to transport your equipment and staff to work sites. In such a case, a business vehicle loan will be more appropriate. Just like a personal auto loan, your vehicle acts as the collateral.

Equipment loan: There are lots of cleaning franchises that offer basic amenities and equipment to start you off when opening the business. However, if you’re expecting rapid growth in the near future, you may need an equipment loan to acquire anything from a series of high-powered vacuums to an industrial carpet cleaner. The equipment you purchase will act as collateral.

Line of credit: an open line of credit is able to help your business cover the different random expenses that you might have missed in your initial research. A line of credit is quite comparable to a term loan, however, instead of getting a lump sum amount and repaying its interest, you only have to repay interest on the actual amount you’ve borrowed.

 

What are the costs to consider?

Most franchises in the cleaning industry do have an ongoing fee structure that you have to pay for you to keep your licensing and operate your business. In exchange for the right to use the brand name and business structure of the franchise, you’ll have to pay some ongoing fees to the franchisor to become a part of the franchise group.

In most franchise industries, the ongoing fees are calculated as a given per cent of the gross income, and the fees can range from 2% to 15%. In the cleaning industry, franchises are often quoted a fixed monthly charge, which essentially gives the franchises an incentive to increase their customer base and income without having to pay the correspondingly high fees.

Along with the price of having a franchise, you will also need to account for the regular costs of running a business, including:

Staff wages: labour won’t come cheap, especially in an industry that relies on picking up other people’s messes. So, to keep things running smoothly, you need to have a budget that lets you offer competitive income to your employees, which gives them a reason to do their job well and stick with you.

Administrative support: regardless of the size of your staff, you will most likely require a team for administrative support to tackle things like bookkeeping, invoicing, appointments, and other administrative duties.

Equipment servicing: although some cleaning franchises provide you with the initial equipment required to perform the cleaning tasks, you’ll still need to service and maintain the equipment, at your own expense.

Rent: if your cleaning franchise requires you to have a physical storefront or office, rent is one of the more significant expenses you’ll have to consider. The amount you pay every month will depend on your location and the amount of space you need for your operations.

Consumables: when you first purchase your cleaning service franchise, you will receive a supply of uniforms, cleaning products, stationery, and other business consumables. However, you’ll most likely have to replenish these supplies by yourself regularly.

 

Independent cleaning business vs. cleaning franchise

Before you even start looking for franchises and finding loans, you need to know the kind of business you want to start. This means you will need to consider whether or not you want to build a new business from scratch or pursue a franchise. From there, you can then browse your options.

Cleaning franchise: there are many companies across Australia that specialise in residential or commercial cleaning. Just like other franchise options, you can choose to buy into one for a given fee, and use the brand and their marketing tools to create demand for your services.

Independent cleaning business: for those who already know the ins and outs of running a business and are familiar with how the cleaning industry generally works, starting your own business is a compelling option. It ideally gives you the freedom of doing whatever you want, although you will still have to compete with the already established brands that service your area.

 

Tips for Starting your Own Independent Cleaning Business

opening a cleaning business tips

Although you should explore your options and consult professionals who have already run their own cleaning business, the following tips should help you get started with your own company.

Draft your business plan: A business plan is the first step to any successful business endeavour. It helps you outline what you have to do to set yourself apart from the competition and come up with a set of goals to take you there.

Registering your business: now that you have a solid business plan, the next step is putting your hard work into action. Of course, you want to formally register your business and have it properly registered and licensed. File for insurance to cover you in case something is stolen, lost, or broken, while on a clients premises.

Determine what you’re going to charge: a vital part of your initial research is the amount of money cleaning businesses charge per hour. Here, you want to set your fees competitively.

Build your client list: once your business is properly registered and you know how much you want to charge, start building your client list. Send out fliers, contact local businesses, and post on job boards. You don’t have to purchase any supplies until you get your first client. After all, things might not always go as planned, and you don’t want the hassle of excess supplies lying around.

Work hard: clean with care, build your website and social media pages, and take your time to build a rapport with your customers. The secret to success is doing your job well, and if you can successfully set yourself apart from other cleaning services in your area, you can easily find yourself running a top-notch business.

 

How Lenders Determine Approval

Lenders typically weigh out the strength of your business model against some other factors like the market demand and your personal credit score. Financial institutions and banks tend to view franchises a bit more favourably than independent start-ups, primarily due to the proven business models. Nonetheless, this doesn’t mean that you won’t find financing for your own company.

The kind of loan you request will also be a key determinant. A loan that has an in-built collateral tends to attract more lenders compared to one with more risk, such as a line of credit or an unsecured loan.

Your personal financial history will also influence the lender’s decision as well. Your background in the industry, credit score, and your business plan will ideally show lenders that you know how to handle yourself under stress and to successfully run a business. Whether you are starting your own company or buying into a franchise, lenders want to see that you know what you’re doing, and that you have a history of successful management.

It’s wise to shop around to find a lender that specialises or one that’s looking to invest in an independent cleaning business or franchise.

 

How Profitable Are Cleaning Companies?

The profitability of your cleaning business will depend on its size, the type of clientele you attract, and your local market. Cleaning businesses tend to have stable business models, and the income-generating opportunities and the revenues are unlikely to fluctuate substantially.

Unlike many other franchise businesses, if you choose to invest in a cleaning service franchise, you might have to do some of the work yourself, whether it’s taking on cleaning tasks or managing the office. This will reduce the need for hiring extra staff, and could mean more profits. Nonetheless, it could make the business more hands-on than you may have hoped.

This still holds for small start-ups. You’ll have to do much of the initial work, but for the huge part, the profits will be yours. The profitability of your business will also depend on the hours you’re willing to put in. With a good attitude and culture, you can make a decent income running a cleaning business.

Businesses usually pay more for cleaning services than the individual households will. However, a commercial cleaning company will need to hire more staff. Ensure that your business model reflects this, and see how much you can expect from a residential vs. commercial service.

 

Bottom line

Whether you choose to purchase a cleaning company franchise or start off on your own, don’t forget that your initial investment has to reflect the overall goals of your business. Plan for expansion and seek financing that suits your business in both the short- and long-run.