Clozetivity
Home Services
Founded 202157 locationsCompany Profile
Year Founded:2021
Clozetivity Franchise Cost
| Franchise Fee: | $39,000Key Metric |
| Total Investment: | $82,000 - $158,000Key Metric |
| Liquid Capital: | $22,500 |
| Royalty Fee: | Not specified |
| Marketing Fee: | Not specified |
Quick ROI Calculator
Based on Clozetivity's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:57
Scale relative to 1,000 locations
Franchised Units:57
Additional Information
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
16
High Risk
Critical items
41% of total
19
Medium Risk
Monitor closely
49% of total
4
Low Risk
Manageable items
10% of total
39
Total Items
Factors analyzed
10 categories
6.54
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
3 risks identified
1
2
Limited Operating History Under Current Ownership
High
Explanation:
- Clozetivity Holdings, Inc. only acquired the assets of its predecessor, Clozetivity Franchising, LLC, on March 3, 2024, and began offering franchises under the new ownership on March 20, 2024. This extremely short operating history under the current management creates significant uncertainty about their ability to effectively manage and support a franchise system.
- The new ownership lacks a proven track record in franchising under the current structure, which increases the risk of strategic missteps, operational inefficiencies, and inadequate franchisee support.
Potential Mitigations:
- Thoroughly investigate the background and experience of the new management team. Seek evidence of prior success in franchising or related industries.
- Contact existing franchisees to assess their satisfaction with the transition and the level of support received from the new franchisor.
- Carefully review the Franchise Agreement and other legal documents to understand the terms and conditions of the franchise relationship, including termination clauses and dispute resolution mechanisms.
FDD Citations:
- Item 1: "We were formed on Nov. 15, 2023...We began offering franchises under Clozetivity Holdings, Inc. On March 20, 2024."
- Item 1: "On March 3ʳᵈ 2024 Clozetivity Holdings, Inc. purchased the assets of our Predecessor..."
Short Overall Franchise History
Medium
Explanation:
- While the predecessor began franchising in 2021, the overall franchise system is still relatively young. This limited history makes it difficult to assess the long-term viability and profitability of the franchise model.
- There is less data available to evaluate the system's performance through various economic cycles and market conditions.
Potential Mitigations:
- Analyze the historical performance data provided in Item 20, paying close attention to franchisee turnover rates and financial metrics.
- Research industry trends and competitive landscape to assess the long-term growth potential of the home services sector, specifically closet and organizational systems.
- Consult with experienced franchise attorneys and financial advisors to evaluate the risks and potential rewards of investing in a relatively new franchise system.
FDD Citations:
- Item 1: "Predecessor offered and sold Clozetivity franchises beginning in 2021..."
- Item 20: Table 1, Table 3 - Data spanning only 2021-2023.
Rapid Growth Followed by Potential Slowdown
Medium
Explanation:
- Item 20 reveals significant growth in the number of franchisees from 2021 to 2023. However, the data also suggests a potential slowdown in growth, particularly in 2023. This raises concerns about market saturation, increased competition among franchisees, and the franchisor's ability to sustain its expansion strategy.
Potential Mitigations:
- Carefully analyze the franchisor's market analysis and expansion plans. Determine if the projected growth is realistic and sustainable.
- Inquire about the franchisor's strategies for managing competition among franchisees, including territory protection and marketing support.
- Assess the local market demographics and demand for closet and organizational systems in your target territory.
FDD Citations:
- Item 20: Table 1 and Table 3 - Showing growth patterns and specific numbers of openings and closures.
Disclosure & Representation Risks
6 risks identified
2
3
1
Lack of Financial Performance Representations
High
Explanation:
- The FDD does not provide Item 19, which typically contains Financial Performance Representations (FPRs). This absence makes it difficult to assess the potential profitability of the franchise and compare it to other opportunities.
- Without FPRs, potential franchisees are left to rely solely on the franchisor's projections, which may be overly optimistic.
- This lack of transparency increases the risk of making an uninformed investment decision.
Potential Mitigations:
- Request financial information directly from the franchisor, such as average unit volumes, revenues, and expenses for existing franchisees.
- Consult with a financial advisor to analyze the provided financial information and create realistic projections.
- Network with existing franchisees to gain insights into their financial performance and experiences.
- Consider the absence of FPRs as a significant red flag and proceed with extreme caution.
FDD Citations:
- Item 19 is absent from the provided FDD content.
Limited Operating History
High
Explanation:
- Clozetivity was founded in 2021, indicating a limited operating history. This poses a significant risk as there is less established brand recognition, market penetration, and proven business model.
- A short track record makes it harder to predict future success and increases the risk of unforeseen challenges.
Potential Mitigations:
- Thoroughly research the franchisor's management team and their experience in the industry.
- Inquire about the franchisor's plans for future growth and development.
- Seek legal and financial advice to assess the risks associated with investing in a young franchise.
- Compare Clozetivity's offering with more established competitors in the home services industry.
FDD Citations:
- Franchise Context: Founded: 2021
Unclear Franchise Agreement Terms
Medium
Explanation:
- The provided FDD content includes a Table of Contents for the Franchise Agreement but not the full agreement itself. This makes it impossible to analyze crucial details such as termination clauses, renewal rights, dispute resolution processes, and other key provisions.
- Without access to the complete agreement, potential franchisees cannot fully understand their rights and obligations.
Potential Mitigations:
- Request a complete copy of the Franchise Agreement and review it carefully with legal counsel before signing.
- Pay close attention to clauses related to termination, renewal, royalties, advertising fees, and territorial rights.
- Clarify any ambiguities or concerns with the franchisor in writing.
FDD Citations:
- Exhibit E - Franchise Agreement (Table of Contents only)
Dependence on Franchisor's Systems
Medium
Explanation:
- Franchisees are typically required to adhere to the franchisor's systems and procedures, as outlined in the Operations Manual. This dependence can limit flexibility and innovation.
- Changes to the franchisor's systems or technology could impact the franchisee's operations and profitability.
Potential Mitigations:
- Carefully review the Operations Manual to understand the level of control the franchisor exerts over daily operations.
- Inquire about the franchisor's process for updating systems and technology and the potential impact on franchisees.
- Assess the flexibility allowed for adapting to local market conditions.
FDD Citations:
- Exhibit C - Operations Manual Table of Contents
Potential for Disputes with Franchisor
Medium
Explanation:
- All franchise relationships carry the potential for disputes. The absence of the full Franchise Agreement makes it impossible to assess the dispute resolution mechanisms.
- Disputes can arise over various issues, such as royalty payments, territorial encroachment, or adherence to brand standards.
Potential Mitigations:
- Obtain and review the full Franchise Agreement to understand the dispute resolution process.
- Consult with an attorney specializing in franchise law to assess the fairness and effectiveness of the dispute resolution mechanisms.
- Maintain open communication with the franchisor and address any concerns promptly.
FDD Citations:
- Exhibit E - Franchise Agreement (implied, as disputes are inherent in franchise relationships)
Receipt Process Ambiguity
Low
Explanation:
- Item 23 mentions a detachable receipt in Exhibit J, but the content of Exhibit J is not provided. While seemingly minor, the lack of clarity on the receipt process could indicate a lack of attention to detail in the FDD.
Potential Mitigations:
- Request a copy of Exhibit J to understand the receipt process fully.
- Ensure you receive and retain a copy of the signed receipt as proof of receiving the FDD.
FDD Citations:
- Item 23 RECEIPTS
Financial & Fee Risks
3 risks identified
3
Limited Financial Performance Representation Sample Size
High
Explanation:
- The FDD presents 2023 financial information from only 11 franchisees (representing 25 territories) out of a total of 21 franchisees (49 territories). This small sample size (52% of franchisees) may not accurately represent the typical financial performance of a Clozetivity franchise.
- Excluding 10 franchisees and 24 territories (49% of the system) because they didn't meet the criteria of operating for a full year raises concerns about the overall success rate and potential challenges faced by newer franchisees.
Potential Mitigations:
- Request additional financial data from franchisees not included in Item 19, including those operating for less than a year. Understand the reasons for exclusion and the performance of excluded franchisees.
- Interview existing franchisees, especially those excluded from Item 19, to gain a broader perspective on financial performance, challenges, and realistic expectations.
- Consult with a financial advisor to analyze the provided data and assess the potential profitability of the franchise based on various scenarios and market conditions.
FDD Citations:
- Item 19: "We have presented 2023 financial information from 11 franchisees...who collectively own 25 Clozetivity Businesses...We excluded 10 franchise and 24 territories from this Item 19 that did not meet the criteria."
Wide Range of Revenue Performance
High
Explanation:
- Item 19 shows a significant disparity in average revenue between the top 5% ($2,457,012) and the bottom 5% ($112,607) of franchisees. This wide range suggests inconsistent performance and potential challenges in achieving profitability for some franchisees.
- The large difference between the average revenue ($512,116) and the median revenue (not provided) could indicate that a few high-performing franchisees are skewing the average upwards, potentially misrepresenting typical earnings.
Potential Mitigations:
- Investigate the factors contributing to the wide range of revenue performance. Understand the business practices, market conditions, and other variables that differentiate high-performing franchisees from low-performing ones.
- Develop a realistic business plan based on the lower quartiles of revenue performance to avoid overly optimistic projections.
- Seek guidance from the franchisor on best practices and strategies to maximize revenue potential.
FDD Citations:
- Item 19: Revenue tables showing the distribution of franchisee revenue.
Lack of Net Profit Information
High
Explanation:
- Item 19 only presents revenue data and does not disclose any information about franchisee expenses or net profits. This makes it difficult to assess the true profitability of a Clozetivity franchise.
- Without expense information, potential franchisees cannot accurately calculate their potential net income and assess the financial viability of the business.
Potential Mitigations:
- Request detailed information on typical operating expenses, including royalty fees, advertising fees, marketing costs, rent, utilities, labor costs, and other relevant expenses.
- Develop a comprehensive financial model that incorporates estimated expenses to project potential net profits under various scenarios.
- Consult with existing franchisees to gather information about their actual expenses and profit margins.
FDD Citations:
- Item 19: "This financial performance representation does not report other variable costs or fixed operating expenses, or other costs or expenses that must be deducted from the revenue figures to obtain net income or profit."
Legal & Contract Risks
3 risks identified
1
2
Inconsistency between Franchise Agreement and State Laws
High
Explanation:
- The FDD includes several state-specific amendments (Hawaii, Illinois, Maryland, Minnesota) that modify the standard Franchise Agreement to comply with respective state franchise laws. This indicates potential conflicts between the original agreement and various state regulations regarding termination, renewal, transfer, and dispute resolution.
- These inconsistencies create uncertainty for franchisees operating in those states and could lead to legal disputes over which provisions prevail.
- The reliance on amendments suggests the base Franchise Agreement may not be adequately tailored to comply with varying state franchise laws, increasing the risk of future legal challenges.
Potential Mitigations:
- Carefully review the base Franchise Agreement and ALL applicable state amendments to understand the specific differences and how they impact your rights and obligations.
- Consult with a franchise attorney specializing in the relevant state laws to assess the potential impact of these inconsistencies and ensure your interests are protected.
- Request clarification from the franchisor regarding any ambiguities or conflicting provisions between the base agreement and state amendments.
FDD Citations:
- Item 17, State Specific Amendments: "The Wisconsin Fair Dealership Law...may affect the termination provision of the Franchise Agreement."
- Item 17, Hawaii Amendment: "If this Sub-article contains a provision that is inconsistent with the Hawaii Franchise Investment Law, the Hawaii Franchise Investment Law will control."
- Item 17, Illinois Amendment: "In conformance with Section 4 of the Illinois Franchise Disclosure Act, any provision...designating jurisdiction...outside of Illinois is void."
- Item 17, Maryland Amendment: "A Maryland franchise regulation states that it is an unfair or deceptive practice to require a franchisee to waive its right to file a lawsuit in Maryland."
- Item 17, Minnesota Amendment: "Minnesota law provides a franchisee with certain termination and non-renewal rights."
Dispute Resolution through Arbitration (Maryland)
Medium
Explanation:
- The Maryland amendment highlights a potential conflict between the Franchise Agreement's arbitration clause and Maryland franchise regulations, which prohibit waiving the right to sue in Maryland for violations of the Maryland Franchise Law.
- This ambiguity creates uncertainty about the enforceability of the arbitration clause and could lead to costly legal battles over the proper forum for resolving disputes.
Potential Mitigations:
- Consult with a Maryland franchise attorney to understand the implications of this conflict and the potential outcomes of choosing arbitration versus litigation in Maryland.
- Discuss the issue with the franchisor and seek clarification on their position regarding dispute resolution in Maryland.
FDD Citations:
- Item 17, Maryland Amendment: "The franchise agreement provides that disputes are resolved through arbitration...there is some dispute as to whether this forum selection requirement is legally enforceable."
Waiver of Rights Limitations (Illinois)
Medium
Explanation:
- The Illinois amendment explicitly states that any provision waiving compliance with the Illinois Franchise Disclosure Act is void. This protects franchisees from unknowingly signing away their rights under Illinois law.
- However, it's crucial to be aware of this provision and ensure the Franchise Agreement doesn't contain any hidden or indirect waivers that could violate this law.
Potential Mitigations:
- Carefully review the Franchise Agreement with an Illinois franchise attorney to identify any potential waivers, even if indirectly phrased.
- Seek clarification from the franchisor regarding any clauses that seem to limit your rights under Illinois law.
FDD Citations:
- Item 17, Illinois Amendment: "In conformance with section 41 of the Illinois Franchise Disclosure Act, any...provision purporting to bind any person...to waive compliance...is void."
Territory & Competition Risks
3 risks identified
2
1
Non-Exclusive Territory
High
Explanation:
- The FDD explicitly states that territories are non-exclusive, meaning you will face competition from other franchisees, company-owned outlets, and other distribution channels controlled by the franchisor.
- This significantly increases the risk of market saturation and cannibalization, potentially impacting your revenue and profitability.
Potential Mitigations:
- Thoroughly research the existing competitive landscape in your target territory, including other Clozetivity franchisees and alternative service providers.
- Develop a strong local marketing strategy to differentiate your business and build a loyal customer base.
- Focus on providing exceptional customer service and building strong relationships within your community.
FDD Citations:
- Item 12, Territory Rights: "You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control."
Franchisor's Reserved Rights
High
Explanation:
- The franchisor retains broad "Reserved Rights" to operate and authorize others to operate similar businesses, even within your territory (though not using the licensed marks).
- This could lead to direct competition from the franchisor itself or affiliated entities, potentially undermining your market share.
Potential Mitigations:
- Carefully review Article 2.D of the Franchise Agreement to fully understand the scope of the franchisor's Reserved Rights.
- Seek legal counsel to assess the potential impact of these rights on your business operations.
- Consider negotiating with the franchisor to limit the exercise of these rights within your territory.
FDD Citations:
- Item 12, Reserved Rights: "We and our affiliates reserve to ourselves the exclusive right... to engage in the following activities (our “Reserved Rights”): (a) operate and grant to others the right to develop and operate Clozetivity Businesses using the System and Licensed Marks outside your Operating Territory..."
- Item 12, Reserved Rights (b), (c): Details of reserved rights related to acquisitions, mergers, and affiliations.
Corporate Accounts Program
Medium
Explanation:
- While you can opt out of the Corporate Accounts Program, the franchisor can still service these accounts in your territory, potentially diverting revenue from your business.
- Pricing and fees for corporate accounts are determined solely by the franchisor, limiting your control over profitability.
Potential Mitigations:
- Carefully evaluate the terms and conditions of the Corporate Accounts Program before deciding whether to participate.
- Assess the potential impact of corporate accounts on your revenue projections.
- Negotiate with the franchisor for a fair share of revenue generated from corporate accounts in your territory.
FDD Citations:
- Item 12, Corporate Accounts Program: "You will have an option to refuse to participate in Corporate Accounts Programs, but if you do, you agree that we can service the Corporate Accounts in your territory or authorize others, including other franchisees, to perform work for the Corporate Accounts."
Regulatory & Compliance Risks
5 risks identified
1
3
1
Recent Franchisor Formation and Asset Acquisition
Medium
Explanation:
- Clozetivity Holdings, Inc. was formed very recently (November 15, 2023) and acquired the assets of its predecessor, Clozetivity Franchising, LLC, on March 3, 2024. This recent restructuring and transfer of assets introduces uncertainty regarding the new franchisor's operational experience and financial stability.
- The new franchisor lacks a proven track record, which could impact its ability to provide adequate support and resources to franchisees.
- Potential integration challenges arising from the asset acquisition could disrupt operations and franchisee support.
Potential Mitigations:
- Thoroughly investigate the background and experience of the key personnel in Clozetivity Holdings, Inc., focusing on their experience in franchising and the home services industry.
- Carefully review the Franchise Agreement and related documents to understand the terms of the asset transfer and any potential liabilities assumed by the new franchisor.
- Seek legal counsel to assess the potential risks associated with the recent restructuring and asset acquisition.
FDD Citations:
- Item 1: "We were formed on Nov. 15, 2023..."
- Item 1: "On March 3ʳᵈ 2024 Clozetivity Holdings, Inc. purchased the assets of our Predecessor..."
Limited Operating History as Franchisor
Medium
Explanation:
- While the predecessor began offering franchises in 2021, Clozetivity Holdings, Inc. only started offering franchises on March 20, 2024. This limited history as a franchisor increases the risk of unforeseen challenges and operational inefficiencies.
- The franchisor's lack of experience could lead to inadequate support for franchisees and difficulties in adapting to market changes.
Potential Mitigations:
- Speak with existing franchisees about their experiences with the previous franchisor and their expectations of the new one. Focus on support received, profitability, and any challenges encountered.
- Request detailed information about the franchisor's plans for future growth and development, including marketing strategies and franchisee support programs.
- Assess the franchisor's financial stability and its ability to fulfill its obligations to franchisees.
FDD Citations:
- Item 1: "We began offering franchises under Clozetivity Holdings, Inc. On March 20, 2024."
- Item 1: "Predecessor offered and sold Clozetivity franchises beginning in 2021..."
Dependence on Franchisor-Approved Suppliers
Medium
Explanation:
- Franchisees are required to purchase System Supplies exclusively from the franchisor, its affiliates, or designated suppliers. This restricts franchisees' flexibility and potentially exposes them to higher prices and limited product choices.
- Dependence on approved suppliers can create supply chain vulnerabilities, impacting franchisees' ability to meet customer demand.
- The Indiana addendum to Item 8 suggests potential conflicts of interest regarding benefits the franchisor might receive from supplier relationships.
Potential Mitigations:
- Carefully review the terms and conditions of supply agreements, including pricing structures and product availability guarantees.
- Negotiate for greater flexibility in sourcing supplies, if possible.
- Seek clarification on the franchisor's relationships with approved suppliers and any potential conflicts of interest, particularly in Indiana.
FDD Citations:
- Item 1: "You may only offer and sell the Approved Services and Products using System Supplies purchased through us, our affiliates or our designated approved suppliers."
- Item 8 (Indiana Supplement): "...the franchisor will not obtain money, goods, services, or any other benefit...unless the benefit is promptly accounted for, and transmitted by the franchisee."
Potential for Misclassification of Employees
Low
Explanation:
- The FDD mentions managing employees but doesn't explicitly address employee classification. This raises the risk of misclassifying employees as independent contractors, leading to potential legal and financial liabilities.
Potential Mitigations:
- Consult with legal counsel specializing in employment law to ensure proper classification of workers and compliance with all applicable regulations.
- Implement clear policies and procedures for employee management, including payroll, benefits, and worker's compensation.
- Obtain written guidance from the franchisor regarding their expectations for employee classification and management.
FDD Citations:
- Item 1: "...managing employees..." (lack of specific guidance on classification)
Personal Liability for Corporate Entity Owners
High
Explanation:
- The FDD states that if the franchisee is a Corporate Entity, the Franchise Agreement will also apply to individual owners, shareholders, members, officers, directors, and other principals. This exposes these individuals to personal liability for the obligations of the franchise.
- This provision can significantly impact the personal assets of individuals involved in the franchise, even if operating under a limited liability structure.
Potential Mitigations:
- Carefully review the Franchise Agreement with legal counsel to fully understand the extent of personal liability.
- Negotiate with the franchisor to limit or remove personal guarantees, if possible.
- Consider alternative business structures to minimize personal exposure.
FDD Citations:
- Item 1: "If you are a limited liability company, partnership or other legal entity (a “Corporate Entity”), our Franchise Agreement will also apply to your individual owners, shareholders, members, officers, directors, and other principals."
Franchisor Support Risks
3 risks identified
1
2
Limited Initial Training
Medium
Explanation:
- Only three days of initial training may be insufficient to prepare franchisees for the complexities of running a home services business, especially given the operational, marketing, and customer service aspects involved.
- The limited training duration raises concerns about the depth and comprehensiveness of the curriculum, potentially leaving franchisees inadequately equipped to handle various business challenges.
Potential Mitigations:
- Request a detailed training schedule and curriculum to assess the content covered. Inquire about opportunities for additional training or support beyond the initial three days.
- Seek feedback from existing franchisees about the adequacy of the training program and identify any common challenges faced post-training.
- Consider supplementing the franchisor's training with independent business management courses or industry-specific certifications.
FDD Citations:
- Item 7: "The training program takes place over a three-day period…"
- Item 11: (Assumed reference to more detailed training description, not provided in excerpt)
Restrictive Site Selection Process
Medium
Explanation:
- The franchisor's control over site selection, including the requirement for approval and potential termination for non-compliance, can limit franchisee flexibility and autonomy.
- The 30-day response period for site approval may delay business launch and incur additional expenses.
- The criteria for site selection are vague, potentially leading to subjective interpretations and disputes.
Potential Mitigations:
- Carefully review the franchisor's site selection guidelines and criteria before signing the franchise agreement.
- Engage in early communication with the franchisor regarding potential sites and seek pre-approval to avoid delays.
- Consult with a real estate professional experienced in franchise site selection to ensure compliance with franchisor requirements and local regulations.
FDD Citations:
- Item 23: "…you must obtain our approval of your selected location."
- Item 23: "Within 30 days of our written receipt…we will respond…"
- Item 23: "If you do not meet our requirements for site selection, we may terminate your Franchise Agreement…"
Limited Marketing Support and Control
High
Explanation:
- The franchisor's requirement for pre-approval of all marketing materials and activities restricts franchisee autonomy and responsiveness to local market conditions.
- While the franchisor provides marketing templates, the franchisee bears the full cost of customization and implementation, potentially straining marketing budgets.
- The franchisor is not obligated to conduct any advertising on behalf of the franchisee, placing the entire marketing burden on the franchisee.
Potential Mitigations:
- Negotiate greater flexibility in marketing activities and budget allocation within the franchise agreement.
- Request a clear schedule and cost breakdown for utilizing the franchisor's marketing resources.
- Develop a comprehensive local marketing plan in consultation with a marketing professional experienced in the home services industry.
FDD Citations:
- Advertising Section 1: "All advertising…must be pre-approved by us…"
- Advertising Section 2: "You are not authorized to engage in any marketing unless it is pre-approved by us…"
- Advertising Section 1: "We are not required to conduct any advertising or spend any amount on your behalf…"
Exit & Transfer Risks
7 risks identified
2
3
2
State-Specific Franchise Law Variations
Medium
Explanation:
- The FDD includes numerous state-specific amendments related to termination, non-renewal, and transfer, indicating variations in franchise laws across different states. This complexity can create challenges in understanding and complying with applicable regulations depending on the franchise location.
- Inconsistencies between the Franchise Agreement and state laws can lead to legal disputes and affect the franchisee's rights regarding termination, renewal, and transfer.
Potential Mitigations:
- Carefully review the specific state amendment applicable to your franchise location to understand the implications for termination, renewal, and transfer.
- Consult with a franchise attorney specializing in the relevant state law to ensure compliance and protect your rights.
- Develop a clear understanding of the interplay between the Franchise Agreement and state-specific regulations.
FDD Citations:
- Item 17, State Specific Amendments: Amendments for Hawaii, Illinois, Maryland, and Minnesota specifically address variations in state franchise laws related to termination, non-renewal, and transfer.
Wisconsin Fair Dealership Law Impact
High
Explanation:
- The FDD mentions that the Wisconsin Fair Dealership Law may affect the termination provisions of the Franchise Agreement. This law grants significant protections to dealers, potentially making it difficult for the franchisor to terminate the agreement even for cause.
- This could create an imbalance of power in favor of the franchisee in Wisconsin, potentially impacting the franchisor's ability to maintain quality control and brand standards.
Potential Mitigations:
- If operating in Wisconsin, carefully review the Wisconsin Fair Dealership Law and its implications for termination.
- Consult with legal counsel specializing in Wisconsin franchise law to understand the potential limitations on termination rights.
- Factor the potential difficulties in terminating a franchise in Wisconsin into your overall risk assessment.
FDD Citations:
- Item 17: "The Wisconsin Fair Dealership Law Title XIV-A Ch. 135, Section 135.01-135.07 may affect the termination provision of the Franchise Agreement."
Restrictions on Transfer and Renewal Rights (Hawaii, Minnesota)
Medium
Explanation:
- The Hawaii and Minnesota amendments emphasize that the state franchise laws supersede the Franchise Agreement regarding transfer and renewal rights. This could limit the franchisor's control over who can acquire a franchise and under what conditions renewal is granted.
Potential Mitigations:
- Review the Hawaii and Minnesota Franchise Investment Laws to understand the specific requirements for transfer and renewal.
- Consult with legal counsel in these states to ensure compliance with local regulations.
- Factor the potential limitations on transfer and renewal control into your investment decision if operating in these states.
FDD Citations:
- Item 17, Hawaii Amendment: Modifications to Sub-Articles 14.C.(6) and 15.B.(8)
- Item 17, Minnesota Amendment: Modifications to Articles 14.C. and 15.B.
Forum Selection and Dispute Resolution (Maryland)
Medium
Explanation:
- The Maryland amendment highlights a potential conflict between the Franchise Agreement's arbitration clause and the Maryland Franchise Law, which allows franchisees to file lawsuits in Maryland. This ambiguity could lead to legal challenges and uncertainty regarding the appropriate forum for resolving disputes.
Potential Mitigations:
- Consult with legal counsel specializing in Maryland franchise law to understand the enforceability of the arbitration clause and the potential for litigation in Maryland courts.
- Consider the potential costs and complexities of resolving disputes in Maryland if operating in that state.
FDD Citations:
- Item 17, Maryland Amendment: Points 1 and 3 address the dispute resolution process and forum selection.
Voiding of Out-of-State Jurisdiction Clauses (Illinois)
Low
Explanation:
- The Illinois amendment states that any provision designating jurisdiction outside of Illinois is void, except for arbitration. This limits the franchisor's ability to choose a favorable forum for legal proceedings other than arbitration.
Potential Mitigations:
- If operating in Illinois, understand that legal proceedings (excluding arbitration) must take place within Illinois.
- Consult with Illinois counsel to understand the implications of this jurisdictional limitation.
FDD Citations:
- Item 17, Illinois Amendment: "In conformance with Section 4 of the Illinois Franchise Disclosure Act, any provision in a franchise agreement that designates jurisdiction and venue in a forum outside of the State of Illinois is void."
Waiver of Compliance with State Law Void (Illinois)
Low
Explanation:
- The Illinois amendment clarifies that any provision requiring a franchisee to waive compliance with Illinois law is void. This protects franchisees from being pressured into waiving their rights under state law.
Potential Mitigations:
- Be aware that any attempt to waive compliance with Illinois law is unenforceable.
FDD Citations:
- Item 17, Illinois Amendment: "In conformance with section 41 of the Illinois Franchise Disclosure Act, any condition, stipulation or provision purporting to bind any person acquiring any franchise to waive compliance with the Illinois Franchise Disclosure Act or any other law of Illinois is void."
Limitations on General Release (Maryland)
High
Explanation:
- The Maryland amendment specifies that a general release required for renewal, sale, or transfer does not apply to liability under the Maryland Franchise Registration and Disclosure Law. This limits the franchisor's ability to completely release themselves from liability related to the Maryland Franchise Law, even upon transfer or renewal.
- This continued potential liability could impact the franchisor's ability to cleanly exit a franchise relationship and could create ongoing legal risks.
Potential Mitigations:
- Carefully review the Maryland Franchise Registration and Disclosure Law to understand the scope of potential liabilities that cannot be released.
- Consult with Maryland counsel to assess the potential impact of this limitation on exit strategies.
- Factor this ongoing potential liability into your risk assessment, especially if operating in Maryland.
FDD Citations:
- Item 17, Maryland Amendment: Points 2 and 5 address the limitations on general release related to the Maryland Franchise Registration and Disclosure Law.
Operational & Brand Risks
3 risks identified
3
Limited Initial Training
Medium
Explanation:
- Only three days of initial training may be insufficient to prepare franchisees for all aspects of running a home services business, especially considering the complexities of operations, customer service, and technical skills required.
- This limited training could lead to operational inefficiencies, poor customer service, and ultimately, impact profitability.
Potential Mitigations:
- Request additional training opportunities or resources, such as online modules, webinars, or mentorship programs.
- Seek out experienced professionals in the home services industry for guidance and support.
- Thoroughly review the operations manual and other provided materials.
FDD Citations:
- Item 7: "The training program takes place over a three-day period..."
- Item 11: (Details of the training program are referenced but not provided in the excerpt)
Restrictive Site Selection Process
Medium
Explanation:
- The franchisor's control over site selection, including the need for approval and potential termination for not meeting requirements, can limit flexibility and potentially hinder franchisee success in finding a suitable and profitable location.
- The criteria for site selection are not clearly defined, creating uncertainty and potential for disputes.
Potential Mitigations:
- Carefully review the site selection guidelines and clarify any ambiguities with the franchisor.
- Conduct thorough due diligence on potential sites, including market analysis and competitor research.
- Consult with legal counsel to ensure compliance with local regulations and the franchise agreement.
FDD Citations:
- Item 7, Site Selection: "We will provide you with site selection guidelines."
- Item 7, Site Selection: "If you do not meet our requirements for site selection, we may terminate your Franchise Agreement without refunding any fees to you."
Mandatory Marketing Approval and Restrictions
Medium
Explanation:
- Requiring pre-approval for all marketing activities can stifle creativity and responsiveness to local market conditions.
- The 15-day approval period for new marketing materials can delay campaigns and impact their effectiveness.
- The franchisor's full discretion over marketing standards can limit franchisee control over their own marketing efforts.
Potential Mitigations:
- Proactively communicate with the franchisor about marketing plans and seek clarification on their expectations.
- Utilize pre-approved marketing templates whenever possible.
- Build a strong relationship with the franchisor's marketing team to facilitate a smoother approval process.
FDD Citations:
- Item 12, Advertising: "All advertising...must be pre-approved by us in writing..."
- Item 12, Advertising: "...we will approve or disapprove of your request within 15 days of your submission..."
Performance & ROI Risks
3 risks identified
3
Limited Franchisee Sample Size for Performance Data
High
Explanation:
- The Item 19 financial performance representation is based on a small sample size of only 11 franchisees (representing 25 territories) out of a total of 57 franchise units (26 franchised + 1 company-owned as of the end of 2023, per Item 20). This limited sample may not accurately reflect the potential range of financial outcomes for new franchisees.
- Excluding 10 franchisees and 24 territories, representing a significant portion of the system, raises concerns about the overall system's performance and the potential for selection bias in the presented data.
Potential Mitigations:
- Contact the excluded franchisees to understand the reasons for their exclusion and gain a more complete picture of system performance.
- Request additional financial data from a larger sample of franchisees, including those with varying levels of experience and operating in different market conditions.
- Consult with a financial advisor to analyze the provided data and assess the potential for financial success based on your specific circumstances and market.
FDD Citations:
- Item 19: "We have presented 2023 financial information from 11 franchisees...who collectively own 25 Clozetivity Businesses...We excluded 10 franchise and 24 territories from this Item 19 that did not meet the criteria."
- Item 20: Data showing 26 franchised and 1 company-owned units at the end of 2023.
Short Operating History
High
Explanation:
- Clozetivity was founded in 2021, and the average operating history of the represented franchisees is only 1.5 years. This limited history makes it difficult to project long-term performance and assess the brand's resilience to economic downturns or changing market conditions.
Potential Mitigations:
- Research the home services industry and identify potential long-term trends and challenges.
- Develop a detailed business plan that accounts for potential market fluctuations and unforeseen circumstances.
- Seek advice from experienced business owners in the home services industry.
FDD Citations:
- Item 19: "The Represented Franchise Owners have been in business for an average of 1.5 years in their markets."
Wide Range of Revenue Performance
High
Explanation:
- The Item 19 data reveals a significant disparity in revenue performance among the represented franchisees. The top 5% generated $2,457,012, while the bottom 5% generated only $112,607. This wide range suggests that factors beyond the franchisor's control, such as local market conditions, individual franchisee abilities, and competitive landscape, significantly impact financial outcomes.
Potential Mitigations:
- Conduct thorough market research to assess the potential demand for Clozetivity's services in your target area.
- Develop a strong marketing and sales strategy to effectively reach your target customers.
- Benchmark your performance against other franchisees in similar markets.
FDD Citations:
- Item 19: Revenue figures presented in the tables, showing the range from $112,607 to $2,457,012.
FDD Documents by Year
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FDD Year: 2024
Uploaded: 8/8/2025
FDD Documents
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