Deciding to join a building franchise is a significant decision so its natural to have some questions regarding the process of joining, what support you will receive and what is expected from both the franchisee and franchisor.
One important question revolves around the cost of starting a building franchise. In this video, James Stroud explains three important elements that make up the overall cost of joining a building franchise such as Stroud Homes.
Sophie: So James, I’m almost ready to make a decision and I really wanna cut to the chase now. I’ve got some tough questions and my first one is, what is it gonna cost me to join your team?
James: Okay. So the cost of joining the team really comes down to three bases. Now, I’ll say before I go into it, that you need to make this part of your business planning process because it’s variable on a few things. The three cost bases are working capital, the startup cost, and then the fit-out of your sales venue.
James: Okay. So I’ll go into that in a little bit more depth. Working capital is dependent on the amount of houses and the contract somebody expect to build. So typically, we work on 10% of whatever contracts you have underway. So for example, if you expect to build four homes at the same time and each home was a $250,000 contract, that’s a million dollars worth of construction, we should have $100,000. And then, you’ve got your startup costs. So we try to keep startup costs very low so that our builders are able to access the maximum levels of homeowner warranty, DBI insurance, wherever they are. All the stuff to set up a head office, we have a standard list of what we supply to help kick you off. The next cost base, number three, is the cost of fitting out a sales venue. So sales venue can mean either a display office or a display home. And we don’t usually build display homes because it takes a while to get them built. People wanna get their businesses started straightaway. When you add it all up, Sophie, usually you need to have about $150,000 to start one of these businesses up. And if you have more, that’s better, but we have to do a business plan to determine exactly how it’s going to work out for your area and your situation.
Sophie: So James, can I or have other builders had finance when they started the business with you?
James: Absolutely. So most builders don’t have $150,000 or $200,000 sitting around in an account, they just don’t have it sitting around. Don’t think that you’re the only one that doesn’t have the money sitting there ready, you know. But by the same token, most builders have invested in property. The normal thing is to try to extract some equity out of your rental properties. We’ve worked with some financers who help you to get good equity out of your property, and we can point you towards the people that we’ve had success with in the past.
Sophie: James, can I provide my own suppliers, or how does your supply chain work?
James: We do have certain selected preferred suppliers, but no one is locked in. If you write us a letter and say we don’t wanna use that person, then you’re free to choose people that might be better for you and your business in your market.
Sophie: So James, it might be a silly question, but do I actually need a builder’s license?
James: Basically, yes. The answer is yes, Sophie. So every part of Australia requires a nominated builder. So our builders normally start a company to do all of the building work inside, and that company will need a nominated supervisor. Theoretically, you can hire a person who has a builder’s license to be your nominated licensee. But in most cases, our builders do have their own licenses.
Sophie: So James, you’ve been very informative and you’ve answered all of my questions. I’m feeling very comfortable. I’ll have a chat with my husband and I’ll let you know.nd I’ll let you know.