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Zerorez Franchising Systems
How much does Zerorez Franchising Systems cost?
Initial Investment Range
$262,394 to $618,706
Franchise Fee
$17,260 to $63,230
The Zerorez franchisee will operate a business that will provide complete carpet, tile, fabric and living surfaces cleaning services, including upholstery, fabrics, hard surfaces floors, and potentially air duct cleaning, air filters, or other services as determined by Zerorez.
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Zerorez Franchising Systems March 31, 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 audited financial statements for the parent of ZEROREZ Franchising Systems, Inc. (ZFS) show significant operating losses for the past two fiscal years and a substantial accumulated deficit. Financial statements in Note 12 also reveal a large, ongoing liability from a past settlement agreement that requires significant annual payments. While a parent guarantee is provided, the franchising entity's weak financial health could potentially affect its ability to provide support and invest in the brand.
Potential Mitigations
- A franchise accountant should meticulously review the consolidated financial statements, including all notes, to assess the company's long-term viability and ability to meet its obligations.
- It is important to discuss the parent company guarantee with your attorney to understand the scope and practical enforceability of this protection.
- In discussions with your business advisor, question the franchisor about its strategy to return to profitability and how it will fund franchisee support.
High Franchisee Turnover
High Risk
Explanation
Item 20, Table 3 reveals an exceptionally high number of franchise exits in 2022, including 14 units that were re-acquired by the franchisor and 3 that ceased operations from a starting base of 64. This represents a franchisee exit rate of over 25% for that year. Such a high rate of turnover and re-acquisitions, even if historical, may indicate significant past franchisee distress or systemic issues, posing a considerable risk to new investors.
Potential Mitigations
- Your attorney and accountant should help you analyze the three-year turnover data, paying special attention to the high number of franchisor re-acquisitions in 2022.
- Contacting a significant number of former franchisees from the list in Exhibit D is critical to understand why they left the system.
- You should directly question the franchisor about the causes of the high 2022 turnover and the steps taken to improve franchisee success since.
Rapid System Growth
Medium Risk
Explanation
In 2022, the number of company-owned outlets increased dramatically from 6 to 21, corresponding with a high number of franchisee re-acquisitions shown in Item 20. This rapid expansion of corporate operations, funded while the company was incurring significant operating losses as shown in Item 21, could have strained management and support resources. This shift in system composition, absorbing potentially struggling units, presents a risk to the quality of franchisee support.
Potential Mitigations
- A business advisor can help you assess if the franchisor's support infrastructure is robust enough to handle its expanded corporate operations alongside franchisee needs.
- Inquiring with franchisees who have been in the system since before 2022 about any changes in the quality of support is a prudent step.
- Your accountant should review financial statements to assess if resources are allocated effectively between corporate and franchise operations.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified in the FDD package. ZFS has been franchising since 2003 and has a significant number of operating units, indicating it is an established system rather than a new or unproven one. Unproven systems carry higher risks due to the lack of a track record for franchisee success and support.
Potential Mitigations
- When evaluating any franchise, it's wise to have your business advisor assess the system's maturity and its track record over at least five to ten years.
- An accountant should analyze the franchisor's historical financial performance to determine if it has demonstrated stability and profitability over time.
- Your attorney can help you investigate the history of the franchise system to ensure it is well-established.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD package. The franchisor operates in the carpet, tile, and fabric cleaning services industry, which is a mature market with consistent, long-term consumer and commercial demand. A fad business, by contrast, is tied to a short-lived trend, posing a significant risk of failure once public interest wanes.
Potential Mitigations
- Your business advisor should help you research the long-term market demand and competitive landscape for any franchise industry you consider.
- An accountant can help you analyze if the business model is sustainable through various economic cycles, independent of current trends.
- It is prudent to consider a business's potential for repeat customers and recurring revenue streams.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD package. Item 2 details the backgrounds of the franchisor's key executives. Many have significant tenure with the company or within the cleaning and franchise industries. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support.
Potential Mitigations
- A business advisor can assist you in researching the backgrounds and track records of the franchisor's key management personnel.
- When speaking with existing franchisees, always inquire about their perception of the management team's competence, vision, and responsiveness.
- Your attorney should verify that the experience claimed in Item 2 is sufficient to manage a franchise system of its size and complexity.
Private Equity Ownership
Medium Risk
Explanation
The franchisor was acquired by its current parent, Zerorez, Inc., in 2022, and Item 2 indicates board members are from a private equity firm, Banner Capital Management. PE ownership can create pressure to prioritize short-term investor returns over the long-term health of franchisees. This could manifest as increased fees, reduced support, or a future sale of the entire system, creating uncertainty for you.
Potential Mitigations
- Your business advisor should help you research the private equity firm's reputation and track record with other franchise brands they have owned.
- It's crucial to ask current franchisees about any changes in fees, support, or company culture since the acquisition.
- Your attorney should review the franchise agreement for terms related to the franchisor's right to sell or assign the system.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified in the FDD package. Item 1 clearly discloses the parent company, Zerorez, Inc., and provides its audited consolidated financial statements in Exhibit C. Failure to disclose a parent or provide its financials when required can hide financial instability or other risks from prospective franchisees.
Potential Mitigations
- Your attorney should always verify the corporate structure described in Item 1 to identify any parent or affiliate companies.
- If a parent company exists and provides a performance guarantee, your accountant must review its financial statements for stability.
- Ensure that any guarantees from a parent company are attached as an exhibit and reviewed by your attorney for enforceability.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. The company history provided in Item 1 details its corporate name change and re-incorporation but does not indicate any predecessor entities from which it acquired its assets in a way that would obscure a negative history. Inadequate disclosure of a predecessor's track record, including past litigation or failures, can hide systemic issues from new franchisees.
Potential Mitigations
- When reviewing any FDD, ask your attorney to pay close attention to the predecessor history detailed in Item 1.
- A business advisor can help you research the history of the brand and any predecessor companies for undisclosed issues or past franchisee complaints.
- It is wise to ask long-tenured franchisees about their experiences under any previous ownership or corporate name.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses an ongoing arbitration where a former developer franchisee has filed a counterclaim against ZFS alleging serious claims, including fraudulent inducement and negligent misrepresentation. While only one current case, the gravity of these allegations, combined with a past regulatory consent order in Minnesota for unregistered sales, indicates a potential for significant legal disputes. This pattern could suggest issues with the sales process or contractual fulfillment that might affect you.
Potential Mitigations
- A thorough review of all litigation details in Item 3 with your franchise attorney is essential to understand the nature and potential implications of the claims.
- Your business advisor can help you research the context of these legal actions to gauge their severity.
- Speaking with current franchisees about their relationship with the franchisor can provide insight into the potential for disputes.
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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Purchase the complete risk review to see all 102 risks across all 10 categories.
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
Purchase the complete risk review to see all 102 risks across all 10 categories.
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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