How to finance a cleaning service franchise
Make money by taking care of the cleaning tasks that other people don't have time to do.
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When it comes to recession-proof businesses that steadily increase in demand over time, you can't go past domestic and commercial cleaning. In today's fast-paced world, individuals and families are time-poor and struggling to fit everything in. Most families now have both parents employed to some extent, leaving little time for domestic cleaning and other household chores.
In the commercial sector, businesses are stretched thin as they try to stay ahead of their competitors while keeping costs down. Forced to pay a high price for highly qualified staff, corporate business owners are more inclined to outsource their commercial cleaning needs than to utilise their current employees.
Commercial cleaning is a $9 billion industry in Australia, so if you've ever wanted to run your own business and supply domestic and/or commercial cleaning services, read on to find out how you can finance a cleaning service franchise.
Loans you can compare today to finance a cleaning franchise
Costs and profitability
How much does a cleaning services franchise cost in Australia?
As with any other industry, the initial financial outlay for cleaning services franchises can vary considerably based on several factors, including the type of cleaning franchise, the equipment initially supplied with the franchise, the size of the exclusive territory and the existing client base, if applicable.
Examples of start-up investment fees for Australian cleaning franchises include the following:
- AMC Clean. Initial franchise investments begin from $15,600.
- Keen to Clean. Keen to Clean offers three franchise packages – commercial cleaning, domestic cleaning and carpet cleaning, with packages starting from $13,500.
- Express Business Group. One of several franchise business models available, a home and office cleaning franchise begins from $8,950.
- HouseProud. Expect to pay a minimum of $16,990 for a HouseProud domestic cleaning franchise business.
- Chem-Dry. A well-known carpet cleaning company in Australia, Chem-Dry franchises begin from $35,000.
What other costs do I need to consider?
While a franchise business can appear similar to any other Australian business, it is the ongoing fee structure that sets franchises apart. In exchange for the right to utilise a proven brand-name and business structure, franchisees pay ongoing fees to the franchisor for the continued rights to remain part of the franchise group.
In many franchise industries, ongoing franchise fees are calculated as a percentage of gross income, with fees ranging from 2% to as high as 15%. In the cleaning service franchise industry, franchisees are often quoted a fixed monthly fee, giving franchisees the incentive to increase their customer base and their income without paying correspondingly higher fees. Ongoing franchise fees can be as low as $50 per month, with $650 per month a reasonable sum to expect.
In addition, keep in mind the following potential additional costs you will need to pay to maintain your cleaning service franchise:
- Cleaning staff. If you intend to employ cleaners to perform the cleaning tasks for you, this will be one of your largest outgoing expenses.
- Administrative support. Regardless of whether you intend to perform the cleaning tasks yourself or to hire cleaning staff, you may still choose to hire administrative support to take care of invoicing, bookkeeping, appointment setting and other administrative duties.
- Equipment servicing. Some cleaning service franchises will include the initial equipment needed to perform the cleaning tasks, but you will still need to service and maintain the equipment at your own expense.
- Consumables. You will often receive an initial supply of cleaning products, uniforms, stationery and other business consumables when you purchase your cleaning service franchise, but you will likely need to replenish your supplies yourself in the future.
- Rent. If your cleaning service franchise requires an office or physical shopfront, rent will be a significant expense to consider.
How profitable are cleaning services franchises?
Cleaning service franchises are a stable business model, with profits and income earning opportunities unlikely to fluctuate significantly. A primary difference between a cleaning service franchise and other franchise business models is that franchisees who run a cleaning service typically perform the work themselves, instead of hiring staff to take care of the day-to-day tasks.
For this reason, a cleaning service franchise relies upon the hard work and time spent by the franchisee to generate profits, making its profitability easier to estimate. Of course, some cleaning service franchisees employ staff to take on some of the cleaning tasks, giving the franchisee a degree of flexibility in how they run their business.
The profitability of the cleaning service franchise depends on the hours that the franchisee is willing to put into the business. A franchisee purchasing a commercial and residential cleaning franchise could reasonably make $2000-$3000 per week, but this could involve long hours undertaking residential cleaning during the day and commercial cleaning at night.
What options do I have to finance a cleaning services franchise?
Cleaning service franchises have considerably lower initial franchise fees than other franchise business models, making it easier to find the funding required to purchase a franchise.
Franchise business loan. A franchise business loan is similar to a standard business loan and attracts comparable interest rates, but allows investors to borrow against the value of the franchise business. Lenders will typically lend from 50-70% of the value of the business. One difference between a franchise business loan and a standard business loan is that the loan term tends to be tied to the franchise agreement term. This will result in a significantly shorter loan term than a standard business loan. A franchise business loan will typically include funds to cover franchise fees and initial fit-out, stock and business equipment as necessary, but will not include the working capital necessary to fund the business until it starts bringing in an income.
Secured business loan. If you are willing to put a residential property up as security for the loan, your borrowing power will significantly increase. Some lenders will loan as much as 100% of the value of the franchise, provided the residential property has sufficient equity and the franchise is one on which the bank is willing to take a significant risk. Another benefit of offering residential property as security for the loan is that the loan term can increase to the standard 25 to 30 years, rather than being tied to the term of the franchise agreement.
What should I consider when comparing my financing options?
Savings and equity. The comparatively low initial franchise costs of the cleaning service franchise make it a more accessible business than the majority of franchise models. While you may be accepted for a franchise business loan, you should consider your personal savings and access to any equity you may have in your home or other residential property. It may be the case that you could borrow a smaller amount and fund the remainder yourself with your savings. Alternatively, you may find a better deal by refinancing an existing residential property loan to access your equity.
A job versus a business. Cleaning service franchises are unique in that the franchisee typically performs the majority – if not all – of the day-to-day work in the business. Before applying for finance, ask yourself whether you wish to essentially purchase a job for yourself or if you are looking to run a slightly larger business. If you want the stability of a guaranteed job working your own hours, you won't need to invest more than the basic franchise investment fees for a startup. If, on the other hand, you wish to build up a more substantial business, it may be worth looking at something more than an entry-level cleaning service franchise. A slightly larger initial investment could make it easier for you to build a business that you can scale to suit your needs.
How do I get approved for finance?
Lenders tend to look favourably upon franchise businesses due to their proven business model; however, there are certain franchises that will be more appealing to different lenders. Shop around and make enquiries at a range of lenders to find one looking to invest in a cleaning service franchise.
Further increase your chances of being approved for finance by considering the following factors:
- Turnover and profitability. Gather as much information as you can from your chosen franchisor and ideally from other people already operating franchises in comparable areas. Lenders are always interested in seeing detailed financial statements from similar businesses to determine the potential profitability of your franchise.
- Business financials for existing franchise. If you are seeking to purchase an existing franchise rather than start a new one, you will need audited financial records, including profit and loss statements, for at least the previous two years.
- Business plan and cash-flow forecasts. If you are seeking to start a new franchise rather than purchase an existing one, work with your accountant to create a solid business plan including a cash-flow forecast. Lenders need to know that you understand how businesses work and that you have a good idea of the potential profitability of the business.
- When considering purchasing a cleaning service franchise, be clear about whether you wish to create a stable job for yourself or if you dream of creating a larger business enterprise. Your initial investment will need to reflect your ultimate business goal.
- The relatively low start-up costs of the cleaning service franchise mean that you may not need to put up residential property as security for your franchise business loan. However, in this case, understand that the term of your business franchise loan will be linked to the term of the franchise agreement.
- If purchasing an existing cleaning franchise, you will need to provide comprehensive financial documentation to the lender. If seeking to create a new franchise, be prepared to provide a detailed business plan including cash-flow forecasts.
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