When a company is selling their business format to potential entrepreneurial investors in the United States, the U.S. government requires that specific information is "disclosed" to the potential franchisee by way of the so-called Franchise Disclosure Document (FDD). The intention is to enable potential investors to receive all of the information necessary to make an informed decision about their decision to buy any franchise offered.
The nice thing about the FDD, is that it is standardized by sections, "Items 1 - 23", so that it is easier to compare franchise offerings accross brands!
What is in a Franchise Disclosure Document (FDD)?
Franchisor companies are required to provide a complete and accurate FDD (updated every year!) to potential franchise owner candidates. The FDD document enables the future franchisee to make an informed decision before deciding to purchase the franchise business.
Because FDDs are regulated and required to be updated each year, they offer thorough and precise information about the franchise business being offered. The FDD includes the following major topics among others:
The owners and history of the franchisor company
Any legal actions involving the franchisor company
The total investment cost estimate to get started including working capital
Full disclosure of fees, initial and ongoing, associated with buying the franchise
A commitment of the support that the franchisor company will provide
The historical financial performance of the company including an estimate of "How much can I make?" with this franchise
Territory rights and assignment description as well as process to finalize your location
Training commitments, both initial and ongoing, which will be provided
As well, at the back of the FDD, there is a Franchise Agreement (the second half of the document) which is the actual legal and binding contract that defines the legal relationship between the franchisee and franchisor once the new franchise business is started.
Therefore, the Franchise Disclosure Document (FDD) provides a clear and detailed explanation of what a franchisee can expect from the franchise system they may be buying into. It also outlines agreements between the franchisee and franchisor.
The 23 Items (Sections) of the FDD
On the very first page of the FDD typically, prior to listing Item 1 through 23 sections in the FDD, you will find a brief and general description of the franchise business overall and the total initial investment amounts (These are estimated ranges of low to high for the franchise business model(s) offered.) Also, if the franchise system offers rights to purchase multiple locations (Multi-unit Development), then it will briefly describe that here as well.
Glosshouz USA, in the 2023 FDD for example, offers franchise models:
The optimized smaller format Glosshouz Spa Center model: 2800 - 3000 sqft. Initial investment range of $611,700 to $956,200.
The original standard format Glosshouz Spa Center model: 3800 - 4200 sqft. Initial investment range of $885,500 to $1,397,000.
We also offer Multi-unit Development licenses for rights to own 1 - 20 Glosshouz Spa Center locations.
You will find that offering a couple of franchise model formats is not uncommon for many franchise system offerings. By offering various models, the franchisee investor is able to choose a format which better meets their investment level needs and potential return on ivestment for the business.
Next, the FDD document proceeds to diligently and thoroughly disclose all of the information required by the U.S. federal and state governments in specifically arranged and consistent "Items 1 - 23" sections as follows.
Item 1. The Franchisor Company and Its Predecessors
What it Contains: This section offers an introduction to the franchisor company and its history. It often includes details about the company's founders and any related entities.
What to Focus On: Look for information about the franchisor's background and history and time in the industry. Related entities may be instrumental in working with you in the future (as potential suppliers, support organizations or other). It is good to undertand this up front.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD lists the Glosshouz franchisor company, Glosshouz USA, LLC, and briefly describes the spa center business formation in 2016. This section also gives a thorough overview description of the spa center franchise business including services offered, the regulations to be aware of for our industry, as well as the ability to contract with a medical entity (for the medical spa operations).
Item 2. Business Experience
What it Contains: This section provides information about the business experience of the franchisor's key management team. It may include their backgrounds, qualifications, and roles within the company.
What to Focus On: Evaluate the qualifications and expected support from the management team. Overall, you should realize that when you buy into a franchise you will essentially be working with the management team for 10 years or more in some cases! You must trust that the management team is competent and dedicated to your business growth as a priority.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD lists the Glosshouz founder and CEO, Loni Le Van-Etter, along with Dr. Jonathan Gallen our Chief Medical Officer primarily. You do not need to be a physician to own a Glosshouz Spa Center!
Item 3. Litigation
What it Contains: Here, you'll find information about any past or pending legal actions involving the franchisor, its officers, or affiliates. This includes lawsuits, arbitrations, or other legal disputes.
What to Focus On: Investigate the reasons behind these legal actions and consider how they may affect your relationship with the franchisor.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD does not include any legal actions to disclose.
Item 4. Bankruptcy
What it Contains: This section discloses any bankruptcy filings by the franchisor or its key executives. It includes details about the type of bankruptcy and the outcomes.
What to Focus On: Understand the reasons behind the bankruptcy filings and their potential implications for the franchisor's financial stability.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD does not include any bankruptcy information to disclose.
Item 5. Initial Fees
What it Contains: Initial fees include the franchise fee, which you pay to become a franchisee, and any other charges associated with starting your franchise.
What to Focus On: Carefully review the breakdown of initial fees, ensuring you understand what each fee covers and when they will become due during the cycle of starting your new franchise.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes initial fees related to helping a candidate start their Glosshouz Spa Center business such as:
Initial Franchise Fee: $45,000
Site Visit Fee: $1200
Construction Management: $7000 or $13000 depending on our level of involvement
Architect and GC Review: $1500 (only if you don't use ours)
Technology Startup Fee: $1800
Training Fee: $5000 Covers Initial Training
Initial Inventory Required Purchase: $6900 for opening package of collateral and some retail Glosshouz branded items
Grand Opening Marketing: $5000 you will pay to us for grand opening advertising on your behalf
Development Fees: You are offered a significant discount if you'd like to purchase the rights to own more than one Glosshouz. This fee is only applicable if you are interested in Multi-unit Development opportunities for rights to open and secure Glosshouz Spa Center territories for more than one location.
Item 6. Other Fees
What it Contains: This section outlines ongoing fees, such as royalties, advertising fees, and technology fees as well as possibility of certain fees in certain situations. It specifies the frequency, calculation, and methods of payment for these fees which are required to own the franchise.
What to Focus On: Understand and expect these fees when you further develop your forecast and business plan and make sure that your franchise business model supports these fees while providing a robust profit for you. Most importantly, you want to ensure that you are left with a profitable and worthwhile business investment after all required fees.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes Item 6 other fees as follows - but be sure to read the whole FDD to understand a thorough description about these fees and when they apply.
Ongoing franchise royalties: 6% of Gross revenue
Brand Fund Fee: 2% of Gross Revenue
Technology Fee: $450 per week
Local Marketing Requirements: $625 per week
Some fees that are not paid by the franchisee unless required or requested such as:
Marketing design work fee
Relocating your spa fee
Termination fee
Transfer of ownership fee
Extra manager training fee
Managing your spa if you are not able to fee
Interest on overdue payments fee
Insufficient funds fee
Etc. and so forth. These is where you'll want to understand all the fees that may apply for certain requests by you or that may be imposed in certain situations based upon your contractual obligations to own and operate the franchise business successfully.
Item 7. Estimated Initial Investment
What it Contains: Here, you'll find an estimate of the total initial investment required to open and operate the franchise business. While this is an estimate, it is typically the best calculation based on historical information by the franchisor company for each and everything you will need to purchase or spend in order to get up and running in your new franchise business. This section should give the investor a good idea of how to put together their business plan to evaluate the franchise total start-up costs and calculate their possible return on investment.
What to Focus On: Verify these estimates with the help of a financial advisor and by getting actual quotes for services and rents and so on in order to ensure you have a realistic financial start-up plan and estimate for your territory and location chosen.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes Item 7 estimates for initial fees required, location build-out range of estimates, range of expected rents, insurance, signage, supplies, products, initial labor before you start, your associated travel costs, working capital, and other expenses.
You'll always find that the FDD Item 7 will include a wide range of the cost estimates. This is because in many cases it may be unknown as to the exact cost in your area. As well, you may have certain decisions to make about the site selection exact size and state of the site, as well as some initial investment decisions which are your choice about how you will get started. Be sure to thoroughly understand how all of this information and any choices you have the opportunity to make may affect your initial investment requirements. Then you'll want to put together your business plan and arrange for your financing as required accordingly.
Item 8. Restrictions on Sources of Products and Services
What it Contains: This section explains if you must purchase products and services required for your franchise from specific suppliers (which may or may not be affiliated with the franchisor).
What to Focus On: Understand how these requirements may affect your operations, supply, product offerings, branded items, ongoing expenses, and so on.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes a list of certain products, supplies, and services required to be purchase from us or third parties. We are a technology-forward company and require that franchisees use and purchase from us certain technology systems that will create a great experience for your customers. As well, this section details your insurance coverage requirements (purchased from insurance company) among other requirements.
Item 9. Franchisee's Obligations
What it Contains: This section outlines your responsibilities as a franchisee, including training, operations, reporting requirements, and compliance with brand standards.
What to Focus On: Ensure that you can meet these obligations and that they align with your expectations and capabilities.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes a list of all of the obligations of the franchisee operating partner when they are in business, and it refers these obligations listed to the contractual language that is included in the FA (Franchise Agreement) contract that is included as the second half of the overall Franchise Disclosure Document.
Item 10. Financing
What it Contains: If the franchisor offers financing options, this section provides details about the terms, interest rates, and repayment schedule.
What to Focus On: Evaluate the financing options and assess whether they are competitive and suitable for your needs.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD states that we do not currently offer direct financing for your purchase of the Glosshouz Spa Center franchise business. However, we can introduce you to lenders for financing if desired!
Item 11. Franchisor's Assistance, Advertising, Computer Systems, and Training
What it Contains: Details the support, training, marketing assistance, and technology systems provided by the franchisor.
What to Focus On: Consider the level of support offered and whether it meets your requirements for operating a successful franchise.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD describes the support we will give you before you open your spa as well as the support and systems we are obligated to provide to you after you open your Glosshouz Spa Center. We provide some support for site selection and architectural services as well as support to help you build the spa center. We describe in this section our thorough training programs offered both initially and ongoing in the way of our online, in person, and automated Learning Management System platform. We describe the ability for us to assist you with your local advertising needs and we will help to establish your online presence platforms for your location(s). Our technology platforms are also listed in this section so that you are aware of the systems and support we will provide with regard to business operations technology.
You'll want to be sure that your franchisor company can support the important training needs of your franchise business and your employees in order that you are able to learn to provide consistent and quality services to the public. The franchisor company should also be instrumental to give you guidance and business coaching ongoing so that you are able to grow the business profitably and keep up with current trends in the industry.
Section 12. Territory
What it Contains: Describes the territory or geographical area granted to you as a franchisee. It may include any exclusivity rights.
What to Focus On: Understand the extent and limitations of your territory, and how it may impact future competition and market potential. You may not want the franchisor to put another franchise location two blocks down from you, for example.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD describes our territory assignment process and the geographic territory protected area of the current Glosshouz franchise business offering. Typically, a Glosshouz Spa Center franchise may be designated as about a five-mile radius around the spa center location. At the time of commitment and signing the Glosshouz Franchise Agreement for purchase, the franchisee candidate may not have a site selected as of yet. In this case, it is expected that the Attachment 1 to the Franchise Agreement or the Site Selection Approval Letter will be developed in the future to assign the protected territory at a later date once the site selected by you has been approved by us, the franchisor.
Section 13. Trademarks
What it Contains: Discusses the use of the franchisor's trademarks, service marks, and branding. It outlines the guidelines for branding and marketing and your rights for use of the brand.
What to Focus On: Ensure you understand the franchisor's expectations regarding use of the logos, marketing practices, and living up to the Glosshouz brand standards with regards to operational and communications standards.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes description of our registered trademarks and wordmarks and your rights to use them as a franchisee. At the time of this blog post, Glosshouz USA franchisor has trademarks for glosshouz. wordmark and logo as well as a trademark for our very popular BFF Savings Program(TM), which is the name of the Glosshouz monthly membership. Although the latter is not currently included in the 2023 FDD since the 2023 FDD was published prior to registration for that trademark later in the year.
Section 14. Patents, Copyrights, and Proprietary Information
What it Contains: Provides information on any patents, copyrights, or proprietary systems used by the franchisor.
What to Focus On: Understand how these intellectual property protections benefit your business and whether they are adequately safeguarded.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD describes that Glosshouz business, operational, sales and marketing processes are all part of Glosshouz proprietary information and trade secrets and some materials constitute copywrighted information (Including our 300+ page Operating Manual). We pride ourselves on our systems and processes to help you manage and grow your spa business over time.
Section 15. Obligation to Participate in the Actual Operation of the Franchise Business
What it Contains: Outlines whether you, as a franchisee, are required to be directly involved in the day-to-day operations of your franchise location.
What to Focus On: Understand your level of involvement and the impact on your role as a franchise owner.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD describes that it is expected but not required that a franchisee owner may work in the business and oversee operations in a hands-on manner, at least initially while things are getting up and running smoothly as you are importantly developing your staff culture.
Over time, the business may be expected to support hiring Spa Manager, Assistant Manager(s) and front desk as a key personnel positions to take over the day-to-day operations of the Glosshouz Spa Center business.
Section 16: Restrictions on What the Franchisee May Sell
What it Contains: Outlines any restrictions on the types of products or services you can offer as a franchisee. It may also specify the sourcing of certain products.
What to Focus On: Ensure you are comfortable with the limitations placed on your product or service offerings. Consider how these restrictions align with your business goals and market demand.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD states "You must operate the Spa Center in strict conformity with all prescribed methods, procedures, policies, standards, and specifications of the System, ..." Please understand that in order to protect the brand and grow the value of the overall Glosshouz Spa Center franchise (including your location) it is important that brand standards are responsibly maintained. This is what will benefit you, the franchisee, in the long term as you grow your business value.
Section 17: Renewal, Termination, Transfer, and Dispute Resolution
What it Contains: Covers the terms and conditions for renewing your franchise agreement, potential reasons for termination, the process of selling or transferring your franchise, and dispute resolution methods.
What to Focus On: Pay close attention to renewal conditions, termination clauses, and the dispute resolution process. Understand the requirements for selling or transferring your franchise, should the need arise.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD
Section 18: Public Figures
What it Contains: This section discloses any involvement of public figures or celebrities in the franchise system, including endorsements, promotions, or investments.
What to Focus On: Consider the impact of public figures on the franchise's brand and reputation. Evaluate how their involvement may affect your franchise's success.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD does not include the use of any public figures (celebrities for example).
Section 19: Financial Performance Representations
What it Contains: If the franchisor provides financial performance data (which is optional so not all of them do), this section presents information about the actual past financial performance for the franchisor's brand locations. This financial performance information should be analyzed to understand the potential profitability of the franchise business offering. The Item 19 can include sales figures, profit margins, or other financial metrics including the whole profit and loss statement if the franchisor chooses to disclose it.
What to Focus On: If financial performance representations are provided, carefully analyze them to assess the potential financial outcomes if you were to buy the franchise business. You might consider consulting with financial experts to ensure your understanding of the data that is presented.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD, since we are a new franchisor in 2023, includes our Gross Revenue numbers for 2020 through 2022, the last three years financial performance information for our flagship location in Centennial, CO (a suburb of Denver). Keep in mind, this is a mature, 7 year old Glosshouz Spa Center business. In the 2023 FDD Item 19, you will see our Profit and Loss performance for 2022 for this location showing a topline revenue of $3.3 Mil+ and a potential $511K net profit take home potential for a franchisee candidate (after paying all franchise fees). This data shows that it is possible to receive a significant potential return on your investment over time with a Glosshouz Spa Center franchise. And, we are not done growing! Stay tuned for the 2024 Glosshouz FDD with updated numbers for 2023 in review.
Section 20: Outlets and Franchisee Information
What it Contains: If applicable, section 20 offers insights into the number and locations of existing franchise outlets. It also provides contact information for current and former franchisees.
What to Focus On: Use this section to connect with current and former franchisees to gather firsthand insights into their experiences, satisfaction, and challenges within the franchise system.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD was published and updated in July 2023. This is our first year of offering a franchise for sale. Therefore, we do not have any locations to disclose.
Section 21: Financial Statements
What it Contains: Financial statements of the franchisor are presented in this section. These statements include balance sheets, income statements, and cash flow statements.
What to Focus On: Review the financial statements to assess the franchisor's financial stability and growth trends. Consider consulting financial experts to interpret the data accurately.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes our audited financial statements for 2022.
Section 22: Contracts
What it Contains: This section includes copies of contracts you will be required to sign as a franchisee, such as the franchise agreement, lease agreements, and any other contractual obligations.
What to Focus On: Carefully review these contracts to understand your rights and responsibilities as a franchisee. Consider seeking legal counsel to ensure complete understanding of the terms and implications.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD includes the relevant franchising contracts that you will want your franchise attorney to review.
Section 23: Receipts
What it Contains: Acknowledges your receipt of the FDD. It includes a form to be signed and dated, indicating that you have received and reviewed the document.
What to Focus On: Ensure you sign and date this section as confirmation of your review. Keep a copy for your records.
What Glosshouz Spa Center Franchise 2023 FDD Includes: This Glosshouz FDD like all other published FDDs includes this last receipt page of the document. Signing this last receipt page does not obligate you to anything. It is simply a statement which shows (per U.S. franchise law) that we did give you the Franchise Disclosure Document and you received it.
The Franchise Disclosure Document: In Conclusion
Purchasing a franchise can be a great investment opportunity, and as with any investment there is some risk involved. However, the information that is required to be presented in the FDD provides comprehensive knowledge ahead of time to the entrepreneur in order that you can discover what it takes to get started and what can be expected as you plan, commit, develop, start, grow, and operate your franchise business for success. This wealth of historical financial information, operational know-how from the franchisor, and contractual detail to set the working relationship between us offers you an opportunity to plan your path to business ownership and success.
If you think you have what it takes to run a multi-million dollar spa business (with our guidance), get in touch today.
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