The mobile tool industry consists of two business models. The more traditional franchise or “flag” model and the independent dealer. Both have their own unique advantages and disadvantages. Flags are more structured and have certain rules and requirements their distributors must follow, while independent dealers are just that, free to run a mobile tool business independent of those conditions.

Is being an independent distributor right for you? 

It would seem that being independent, and having no one telling you what to do, would be the logical choice. For some, it is. The freedom to call on any shop and carry any tool line, without an approved truck, has its appeal. I've known a couple of dealers that switched from flag to independent without missing a beat. There are a number of quality independent brands. SK Tools, GEARWRENCH, and SP Tools USA are among the most recognizable. There's also a number of quality mobile tool suppliers across the nation, from the nationally recognizable Integrated Supply Network (ISN) in Lakeland, Florida, to smaller mom and pop operations like John Snyder Tool Co. in Portland, Oregon. Both were reliable backup suppliers for me over the years.

Independent startup considerations

Like most things in life, there's a tradeoff to choosing one business model over the other. I'm personally not aware of anyone who came into the mobile tool selling world off the street without any relevant experience and became an independent mobile tool dealer. While I'm sure there are plenty of examples, I'm just not aware of any.

There are a number of challenges an individual would face starting from scratch as an independent. In the first place, the amount of capital needed for a startup would make it cost-prohibitive for most people. It's not just the dollar amount for a starter inventory. That's just the beginning. You'll also need a mobile tool store. Used tool trucks are available in all different price ranges, but an older, affordable tool truck is a gamble. Few new dealers could survive a catastrophic engine or transmission failure in the infancy of a new business.

Also, there are actually two inventories required for this business. The obvious one is the tools on display for sale in your mobile tool store. The second and equally important is the inventory “on the street.” Calling this business model unique is an understatement. The fact that a customer can walk off your truck with a $100 tool with $20 down doesn't exist in any other business that I'm aware of. Because of that, you'll also need to have the capital for the inventory that's still owed to you. That inventory resides in all of your customers’ toolboxes and creates your cash flow.

Along with that, you're going to need enough capital reserves to live on while you build your business. In a best-case scenario, that's going to require at least three months of living expenses. Money turn is one of the most important aspects of the tool business. As an independent dealer, you won't have access to big-ticket financing for your customers. If you sell equipment, toolboxes, etc., you'll have to carry the balance yourself. Simple math will tell you it's better to have 10 customers owing $500 than one customer owing $5,000. It's easier and more secure to have 10 customers paying you $100 a week in order to stay in a five-week turn.

What working as a flagship mobile tool distributor looks like

A franchise tool business has the advantage of a proven business model that can be duplicated in any market. The four flags — Cornwell, Mac Tools, Matco Tools, and Snap-on — are all franchises. Because of that, there are certain safeguards that are regulated by the Federal Trade Commission. There's no guarantee you'll be successful because you’re a franchise dealer, but you’ll have a specific business model to follow to help achieve success. 

Franchise startup considerations

To start, you'll need good credit and sufficient working capital. The requirements are different for each flag, but all offer startup financing. They'll also have you do a personal budget so they can determine your break-even. Everyone's break-even is different too. It's based in part on your living expenses.

You'll also have to be approved for a lease on an approved tool truck. Used trucks are subject to age and miles to be approved. It's to no one’s benefit to start a new dealer in a subpar truck. One of the requirements on the part of the flag is a route survey. The survey isn't a guarantee that the shops will purchase from you. The survey only shows the number of potential customers and a list of shops that have agreed to allow the flag to call on the shop. All four flags require a training class and an in-depth on the truck training period. Along with national brand recognition, you'll have the benefit of being able to offer financing from your flag for big-ticket items. If you’re serious about becoming a franchised dealer, investigate all four companies. Among the questions to ask, I recommend the following as the top five: 

• What are the franchise fees, if any?
• How many years is your franchise agreement, and what are the cost and requirements of a renewal?
• What are the requirements for keeping your franchise in good standing? Purchase requirements, etc.
• Is the franchise agreement based on a list of calls (LOC) or a geographic area? 
  Note: The LOC agreement, in most situations, will only allow you to call on those shops on the route survey. A geographic agreement allows the franchisee to call on any of the shops within a clearly mapped area.
• Is there an additional discount or incentive for paying to terms, and what is the formula?

Switching from a franchise to an independent

So why do dealers leave flags to become independents? From my experience, it's a combination of issues. The primary reason is for the freedom to call on anyone and carry items from any source without restrictions. However, sometimes dealers become independents because they lose their franchise. The No. 1 reason dealers lose their franchise is because of a low purchase average. Sometimes a low purchase average is because of too much outside buying. Sometimes it's simply because the dealer didn't have the skills to run a successful tool business. In that case, if your low purchase average was the reason for your separation, changing flags or going independent isn't going to make a difference. In those cases, a career change would be the best resolution. I think this business is an amazing opportunity. I've been grateful for the experience, but it certainly isn't for everyone. Ask a lot of questions to make the best-informed decision possible before deciding between being a franchise or an independent.