Buying a Janitorial Service Franchise
Buying a janitorial service franchise is a major investment – of time and money. The franchisor must give you a disclosure document; review it with an advisor. Talk with current and former franchisees and check the business with state regulators.
Have you thought about investing in a janitorial service franchise? You could be your own boss and, for a fee, work with a company that provides you with customers and handles the marketing, billing and collection services. The fee usually is about half the gross income the accounts are supposed to generate in a year.
Buying a franchise is a major financial investment and a serious personal commitment. There’s a lot of information to consider. Under the Franchise Rule, enforced by the Federal Trade Commission, you’re entitled to get a disclosure document with important information about the franchise from the franchisor.
Before you invest, read the disclosure document and the franchise agreement. Review the documents with an advisor who has expertise in the franchise area. Check out the company with state regulators. Talk with some of the franchisor’s current and former franchisees to learn about their experiences with the company.
By law, a franchisor must give you a detailed disclosure document. You should receive the disclosure document at least 14 business days before you pay any money or legally commit yourself to buying a franchise. The disclosure document gives a general outline of the franchise offer. It includes background information about the franchisor, a summary of the franchise agreement and a list of current franchisees. Read it carefully to learn about your obligations and the franchise you’re considering.
The disclosure document will include:
- the responsibilities you and the franchisor will have to each other if you buy the franchise
- evidence to support claims about your potential earnings or the earnings of current franchisees
- the total number of franchises
- how many franchises were terminated or not renewed during the past year
- the names, addresses and telephone numbers of at least 10 franchisees who live near you
- the cost to start and operate the business
- the background and experience of the franchisor’s key executives
- a fully audited financial statement of the franchisor
- a discussion of legal actions against the franchisor or its directors, and by the franchisor or directors against franchisees in the past year
In a standard janitorial services franchise agreement, you pay the franchisor a fee to get a “package” of cleaning accounts. If the franchisor gives you accounts it says will bring in $20,000 in gross income before expenses a year, your fee would be $10,000.
The franchise agreement is also called the contract. It details all the legally binding obligations between you and the franchisor in writing. This document controls your relationship with the franchisor. For example, the agreement might say franchisees must pay ongoing fees for management or supplies. If it does, you’ll want to find out what the fees are, what they pay for and how often you have to pay them.
You can rely only on what’s in the written agreement, so be sure all promises made to you in conversations are included in writing. Say a salesperson tells you the franchisor will give you accounts close to home, but the written agreement says you’ll have a large territory with accounts far away. If you sign the agreement, you’ll have to do what it says: travel to the distant jobs.
If any part of the written agreement is different from what the salesperson told you in person, insist that the agreement be changed to match the promises made to you. If the franchisor won’t change the agreement, decide whether you still want to sign the agreement.
Be cautious if you’re thinking about borrowing money from the franchisor to buy the franchise. The interest rate and other financing terms from the franchisor may not be the best deal available.
Several states regulate the sale of franchises. Before you invest, contact your state franchise administrator. Ask if the franchise you’re considering is registered to offer franchises in your state.
Hire a business advisor, accountant or lawyer to review the disclosure document and the franchise agreement with you. The money and time you spend on professional help will inform your investment decisions. You and your advisor may want to read the FTC’s Buying a Franchise: A Consumer Guide.
Talk to each franchisee listed in the disclosure document and ask about their earnings and their experience. How does it compare to what the franchisor told you? Don’t rely only on the information from the franchisor.
The franchisor will estimate the value of the package of accounts you buy, but you may not earn that amount from the accounts. For example, if a customer cancels a cleaning contract during the year, you’ll lose the income from that account. Ask the company how it sets the value for the accounts.
If you suspect a franchise promotion is fraudulent, contact the Federal Trade Commission at ftc.gov/complaint or 1-877-FTC-HELP (1-877-382-4357) or your state franchise regulator.