How to Read a Home Care Franchise FDD: 7 Things That Actually Matter
A Franchise Disclosure Document (FDD) is the single most important piece of due diligence when buying a home care franchise. It is also long, dense, and structured to make comparison hard.
Most prospects skim Item 7 (initial investment) and Item 19 (financial performance) and call it a day. That is how people end up surprised by 8% royalties, mandatory marketing fund contributions, and territory exclusions buried 150 pages in.
Here are the seven items that decide whether a franchise is actually a good deal.
1. Item 5 + 6: The Real Royalty Picture
Item 5 lists the initial fee — typically $48,000 to $65,000 for home care brands. That number is fine. The real cost is in Item 6, which lists ongoing fees.
Look for:
- Royalty percentage — usually 5-7% of gross revenue, but some brands charge 8% or use sliding scales
- Marketing/brand fund — another 1-3% on top
- Technology fees — flat monthly charges that add up at scale
- Minimum royalty — some franchises require a floor regardless of your revenue
A franchise charging 8% royalty + 2% marketing fund is taking 10% off the top before you cover any real costs. On a $1M revenue agency, that is $100,000 a year.
2. Item 7: Total Investment, Not Just the Franchise Fee
Item 7 shows the full range of money you need to open. The franchise fee is usually $50K. The total investment is typically $100K-$200K.
The gap is real costs: office buildout, working capital for the first 6 months, licensing, insurance, initial marketing. Underfunded agencies fail in year one not because the model is bad, but because they ran out of cash before revenue caught up.
If the franchisor only emphasizes the low end of Item 7, ask why.
3. Item 12: Territory — Read Every Word
Territory clauses are where franchisees get burned. Look for:
- Exclusive vs. non-exclusive — non-exclusive means the franchisor can sell another unit next to you
- Reserved rights — many brands reserve the right to sell direct, run national accounts, or open their own corporate locations in your territory
- Population basis vs. geographic — a "100,000 population territory" can be a single zip code in a dense city or three counties in a rural state
If the FDD says "the franchisor may operate or grant others to operate" in your territory, you do not have exclusivity. Period.
4. Item 19: The FPR (or Lack of One)
Item 19 is the Financial Performance Representation. This is where franchisors are allowed (but not required) to disclose actual revenue and profit data from existing units.
What good looks like:
- System-wide revenue averages broken down by tenure (year 1, year 2, year 3+)
- Median, not just average — averages are skewed by a few top performers
- Cost data — gross profit or EBITDA margins, not just topline
What to be skeptical of:
- Only top-quartile franchisees disclosed
- Only mature units (5+ years) shown — hides the failure rate
- No Item 19 at all — legal but tells you the data is not flattering
If a franchise has 200 units but only reports on 40 of them in Item 19, ask what happened to the other 160.
5. Item 20: Outlet History
Item 20 shows opens, closes, and transfers over the past three years. This is the honest picture of the system.
Calculate: closures + transfers, divided by total units at start of year. If that number is over 10% per year, the system is churning. Closures alone over 5% is a red flag.
A growing system with low churn is healthy. A growing system with 15% churn is just signing new franchisees fast enough to mask the failures.
6. Item 21: Audited Financials of the Franchisor
You are not just buying a brand — you are buying a relationship with a company that needs to be solvent for the next 10 years. Item 21 includes the franchisor's audited financial statements.
Things to check:
- Is the franchisor profitable on its own, or only because it sold a lot of new franchises last year?
- How much debt does the parent company carry?
- Has the franchisor recently been acquired by private equity? (Not automatically bad — but it usually means royalties go up)
7. The Lawyer Item: Item 3
Item 3 lists litigation. Some lawsuits are normal — any system with 200+ units will have a few. What you are looking for is patterns: multiple franchisees suing for the same reason, regulatory actions, or fraud allegations against current officers.
A clean Item 3 is a good sign. A messy one is not always a dealbreaker, but it tells you what to ask validation calls about.
How to Actually Use This
Pull two or three FDDs from brands you are seriously considering. Compare them side by side on these seven items in a spreadsheet. The numbers will surprise you.
The franchise that "feels" like the best brand often is not the best deal once you compare Item 5/6 royalty structures and Item 19 margins.