HHO Carbon Clean Systems
Initial Investment Range
$108,380 to $420,330
Franchise Fee
$82,280 to $334,330
The franchise that we offer is for HHO Carbon Clean Systems, a mobile business that offers and sells gasoline and diesel engine carbon cleaning services, on-demand hydrogen equipment, and related products and services.
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HHO Carbon Clean Systems January 29, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor, HHO Franchise, LLC (HHO), explicitly warns of its poor financial condition. The 2024 audited financials reveal a net worth deficit of ($578,435) and a net loss of ($325,404). Current liabilities significantly exceed current assets. This severe financial instability raises substantial doubt about HHO's ability to provide support, invest in the brand, or even remain a going concern, creating a critical risk for your investment.
Potential Mitigations
- A thorough review of the franchisor's financial statements, including all footnotes and related party transactions, with your accountant is essential to assess solvency.
- It is crucial to have your franchise attorney evaluate any state-mandated financial assurances, such as bonds or escrow, that may be in place due to this condition.
- Discuss the franchisor's plan for achieving profitability and financial stability with your business advisor before making any commitment.
High Franchisee Turnover
High Risk
Explanation
Item 20 data reveals a very high rate of franchisee exits for a young system. In 2024, there were 4 terminations against a starting base of 15 units (a 27% termination rate). In 2023, there were 3 cessations. This significant churn in a small system is a major red flag, suggesting potential issues with the business model's viability, franchisee profitability, or franchisor support, which may directly affect your chances of success.
Potential Mitigations
- It is imperative that you contact a significant number of the former franchisees listed in Exhibit G to understand their reasons for leaving the system.
- Engaging a franchise attorney to help you formulate questions for former franchisees can provide deeper insights into systemic issues.
- Your accountant should help you analyze the turnover rates in Item 20 as a percentage of the total outlets to gauge the system's stability.
Rapid System Growth
High Risk
Explanation
The system grew rapidly in its first two years but then stalled, showing a net decrease of one franchised unit in 2024. This slowdown, combined with the franchisor's significant financial losses disclosed in Item 21, suggests that the support infrastructure may be strained and unable to sustain growth or adequately assist existing franchisees. This could directly impact the level and quality of support you receive.
Potential Mitigations
- Question the franchisor directly about their capacity and plans for scaling support infrastructure with your business advisor.
- Interview a broad range of existing franchisees from Exhibit F about the current quality and responsiveness of franchisor support.
- An accountant should review the financials in Item 21 to assess if HHO has the resources to support its current franchisees, let alone future growth.
New/Unproven Franchise System
High Risk
Explanation
HHO is a very new franchise system, having started franchising in late 2020. It has a limited operating history, a small number of franchisees, and as shown in Item 21, is not financially stable. This newness significantly increases risk, as the business model is not yet proven at scale, brand recognition is minimal, and support systems may be underdeveloped. You would be an early adopter in an unproven system.
Potential Mitigations
- Conduct extensive due diligence on the founders' and management's direct experience in both the automotive service industry and in managing a franchise system.
- Speaking with the earliest franchisees listed in Item 20 is critical to understand their experiences with the developing system.
- Your attorney might be able to negotiate more favorable terms, such as lower fees, to compensate for the higher risk of joining an unproven system.
Possible Fad Business
Medium Risk
Explanation
The business of on-site engine carbon cleaning is part of a developing market. While potentially innovative, you should consider if this service represents a sustainable, long-term consumer need or if it is tied to a newer trend that could fade. The long-term viability of the business model may depend on its ability to adapt and maintain demand after initial market interest, which presents a risk to your 10-year contractual commitment.
Potential Mitigations
- A business advisor can help you independently research the long-term market demand for this specific type of automotive service.
- Evaluating the franchisor's stated plans for innovation, research, and development in Item 11 is important for assessing future relevance.
- Your financial advisor can assist in considering the business model's sustainability beyond current trends and its resilience to economic shifts.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD Package. Management experience is a key factor in a franchisor's ability to provide effective support and strategic direction. Inexperienced leadership can lead to flawed systems, poor decision-making, and inadequate franchisee assistance, increasing your operational and financial risk. A thorough review of management's background in both the specific industry and in franchising is always a critical step in due diligence.
Potential Mitigations
- A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
- When speaking with existing franchisees, asking specific questions about their confidence in the management team's leadership and vision is valuable.
- Understanding the past successes and failures of the leadership team can provide insight into their capabilities.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD Package. When a franchisor is owned by a private equity firm, there can be a focus on short-term returns that may not align with the long-term health of franchisees. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system. It is important to understand the ownership structure and its potential impact on your investment.
Potential Mitigations
- Researching the ownership structure of the franchisor is a key due diligence step for your business advisor.
- If a private equity firm is involved, investigating their track record with other franchise systems they have owned can be insightful.
- Your attorney should review any clauses in the Franchise Agreement related to the sale or assignment of the franchise system.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified in the FDD Package. HHO Franchise, LLC does not appear to have a parent company. However, it discloses significant transactions with affiliates. When a franchisor is a subsidiary, the financial health of the parent company can be crucial, especially if the franchisor itself is thinly capitalized. Failure to provide a parent's financial statements, when required, can obscure a complete picture of the system's financial backing.
Potential Mitigations
- An attorney can help verify the franchisor's corporate structure and determine if any undisclosed parent entities exist.
- If a parent company exists and provides guarantees, your accountant should insist on reviewing their financial statements.
- Understanding the full corporate structure is vital to assessing the true financial stability of the franchise system.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD Package, as the franchisor indicates it has no predecessors. When a franchisor acquires a business from a predecessor, it's important to know the predecessor's history. Past issues such as litigation, bankruptcy, or high franchisee failure rates under a predecessor can sometimes carry over or indicate underlying problems with the business model that you are about to invest in.
Potential Mitigations
- An attorney can help you review Item 1 for any mention of predecessors and their history.
- If a predecessor exists, researching their public records and past franchisee satisfaction can provide valuable context.
- Asking long-tenured franchisees about their experience under any previous ownership is a critical due diligence step.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees may suggest an overly aggressive or litigious relationship, which could be a concern for your future.
Potential Mitigations
- Your attorney should confirm that no litigation is disclosed in Item 3 and conduct an independent search for any other legal actions.
- Discussing any past or pending litigation with current and former franchisees can provide context beyond the formal disclosure.
- Understanding the nature of any disclosed litigation is critical to assessing the health of the franchisor-franchisee relationship.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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