FDD Talk 2018: Mister Sparky Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

• Section I – Background information on the Mister Sparky franchise opportunity, including relevant news updates

• Section II – Estimated initial investment for a Mister Sparky franchise, based on Item 7 of the company’s 2018 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a Mister Sparky franchise, based on Items 5 and 6 of the company’s 2018 FDD

• Section IV – Number of franchised and company-owned Mister Sparky outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD

• Section V – Presentation and analysis of Mister Sparky’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:

• 2017 total, average, median, highest, and lowest net sales for the 51 Mister Sparky franchisees that were operating under franchise agreements for one or more territories (“Franchised Business Territories”) with Net Sales during the entire one-year period of January 1, 2017 through December 31, 2017, grouped into four tiers based on the number of Franchised Business Territories owned by franchisees

• 2017 total, average, and median rebates attained by the 24 Mister Sparky franchisees that are BuyMax members and that took advantage of BuyMax services for the period, grouped into six tiers based on the amount of rebates attained

Section I – Background Information

13 Things You Need to Know About the Mister Sparky Franchise

Addressing Technician Staffing Problem Through New Education Program

1.  In recent years, there has been widespread national coverage about a lack of skilled workers in the trades, but Direct Energy’s family of home services companies is tackling the problem head on. Instead of seeking potential employees with years of experience, the parent company of Mister Sparky, One Hour Heating & Air Conditioning, and Benjamin Franklin Plumbing, has decided to find willing applicants with great attitudes and train them with a standardized program.

2.  At the end of November 2017, Success Academy – the dedicated training resource for all branded operations at Direct Energy – announced a national technician education program through Pearson Education, Inc. to make technical training available to Mister Sparky, One Hour Heating & Air Conditioning, and Benjamin Franklin Plumbing locations that choose to utilize the program. The program is called Success Academy Technical Training powered by Pearson Learning Solutions.

3.  David Borowski, technical director at Success Academy, said, “This program gives the knowledge and online resources for locations across the country to hire for character and train technicians from day one. We like to call this option ‘Career in a Year.’ This is a flexible, self-paced curriculum that can help general managers within our network with recruitment, retention, reducing callbacks, and providing technical training.”

4.  In addition to providing courses from beginner to expert levels, technical skills can also be tested prior to hiring an experienced technician. This will allow the hiring manager the opportunity to understand each applicant’s skill level, and then assign technical training as needed once they are hired. Technical training is also available for existing team members who want to improve their skill set. Additionally, training can be targeted according to specific challenges or situations a technician may encounter.

5.  Borowski added, “Our customized trade-specific curriculum, delivery system, on-the-job training, mentorships and our in-house platform of communications training is the perfect way to attract and retain talent, where knowledge equals earning power. This has opened an incredible opportunity to join the ranks of field talent routinely reaching incomes of $75,000+ in the first three to five years with no college debt.”

Included on Entrepreneur Magazine’s Best of the Best Franchises List

6.  On Small Business Week at the beginning of May 2017, Mister Sparky announced that it and fellow Direct Energy brand, One Hour Air Conditioning & Heating, were both included on Entrepreneur magazine’s Best of the Best Franchises list. The list recognized the 105 companies that ranked at the top of their industry categories in Entrepreneur’s 2017 Franchise 500 ranking.

7.  Mark Baker, president of franchise, Direct Energy, said, “Investing in our franchise brands obviously has great benefits. Our growth trajectory for both One Hour and Mister Sparky reflects what we see in the Best of the Best Franchises list, and we aim to continue significant growth in the future. As an industry leader, it is very fulfilling to have this external validation about the value of our brands.”

Providing Safety Tips to Customers During the Holiday Season

8.  Mister Sparky often provides various safety tips to its customers during the year and this past holiday season (2017), the brand shared simple safety tips for winter decorations and heating devices. The brand stressed the importance of following proper precautions when setting up holiday decorations.

9.  Some of Mister Sparky’s suggestions included using wooden or fiberglass ladders because metal ladders conduct electricity; and making sure not to run extension cords, wires, or strings of lights across driveways, sidewalks, stairs, or anywhere they could present a tripping hazard. Mister Sparky also said to look for space heaters that had appropriate safety features and were the right size for the space a customer wants heated.

10.  Lastly, Mister Sparky reminded customers that during the holiday season, everything from decorations, winter storms, and candles contribute to an increased risk of fire. Customers were encouraged to install carbon monoxide detectors if they didn’t already have them and to make sure their smoke detectors had new batteries.

Company History

11.  Mister Sparky was founded in 1996 by Patrick Kennedy in Atlanta, Georgia. The company is the largest residential electrical service and repair company in the eastern United States and one of the biggest in North America overall. Kennedy named the company Mister Sparky because “sparky” or “sparks” is commonly used to refer to electricians in Kennedy’s native Ireland.

12.  In 2006, Kennedy sold Mister Sparky to Clockwork Home Services, Inc. (which is now owned by Direct Energy). At the time of the sale, Kennedy joined Clockwork Home Services as vice president of franchise sales. After the acquisition, Mister Sparky became a national franchise and has since grown to over 100 locations across the United States.

Entrepreneur’s Franchise 500

13.  Mister Sparky has been franchising since 2006, but it did not rank on Entrepreneur’s 2018
Franchise 500 list, although it has ranked in the past.

Section II – Estimated Costs

• Please click here for detailed estimates of Mister Sparky franchise costs, based on Item 7 of the company’s 2018 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on Mister Sparky’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2018 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2015

• Outlets at the Start of the Year:  99
• Outlets at the End of the Year:  96
• Net Change:  -3

2016

• Outlets at the Start of the Year:  96
• Outlets at the End of the Year:  106
• Net Change:  +10

2017

• Outlets at the Start of the Year:  106
• Outlets at the End of the Year:  101
• Net Change:  -5

Company-Owned

2015

• Outlets at the Start of the Year:  6
• Outlets at the End of the Year:  6
• Net Change:  0

2016

• Outlets at the Start of the Year:  6
• Outlets at the End of the Year:  7
• Net Change:  +1

2017

• Outlets at the Start of the Year:  7
• Outlets at the End of the Year:  7
• Net Change:  0

Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis

• In Part 1, Mister Sparky is providing you with historical financial performance representations for the period indicated in Part 1 based on a population of franchisees that were operating under franchise agreements for one or more territories (“Franchised Business Territories”) with Net Sales during the entire one-year period of January 1, 2017 through December 31, 2017 (the “Population Period”). If a franchisee did not have any Franchised Business Territories with Net Sales for the entire Population Period, the franchisor did not include its results in the financial performance representations in Part 1.

• In Part 2 below, Mister Sparky is also providing you with historical rebate information of certain franchisees that are BuyMax members and that took advantage of BuyMax services for the period indicated in Part 2 and that also had Franchised Business Territories with Net Sales during the full Population Period.

• The use of BuyMax services is voluntary and not a requirement of franchisees. Franchisees who did not utilize BuyMax services were excluded from the historical rebate information in Part 2.

• Although the definition of “Net Sales” may change slightly from year to year, “Net Sales” generally means (i) all sales and revenues (and any other income) from the performance of all services and the sale of all products from or related to the Franchised Business Territory (or through or by means of the business conducted by the franchisee with respect to the Franchised Business Territory) whether or not authorized under the Franchise Agreement and whether or not inside the applicable Franchised Business Territory (including proceeds of any business interruption insurance, revenues received for performing commercial services or sale of products to commercial customers, and any other revenue shown in your records), less (ii) sales taxes, bona fide refunds, rebates, or discounts to customers; bona fide and reasonable payments made in the ordinary course of business to unaffiliated subcontractors who perform services unrelated to the franchisee’s core business and at the franchisee’s customer’s premises; and any reasonable and customary job-specific permit fees paid to any government entities.

• A franchisee’s Net Sales are obtained from individual financial packages submitted to Mister Sparky by its franchisees on a monthly basis. These financial packages include profit and loss statements with sales data for Mister Sparky to calculate applicable franchisee fees. Franchisee fees are calculated on Net Sales, as defined in the Franchise Agreement for the Franchised Business Territory.

• Net Sales are captured in electronic work papers and are the basis for this historical financial performance representation. Occasionally, franchisees fail to report. In such circumstances, estimates based on other financial records provided by non-reporting franchisees, such as required daily sales reports, are employed. None of these estimates have a material impact on the total amounts reported below.

• Mister Sparky reasonably relies on this data and believes it to be true and correct. However, Mister Sparky has not audited this data and cannot therefore provide any further assurances as to its accuracy or completeness.

• The rebate information used for Part 2 is obtained from individual information submitted by franchisees that are BuyMax members. Mister Sparky reasonably relies on this data and believes it to be true and correct. However, the franchisor has not audited this data and cannot therefore provide any further assurances as to its accuracy or completeness.

Part 1 – Franchisee Net Sales (by Tiers) for Fiscal Year Ended December 31, 2017

Tier 4:  4 or More Franchised Business Territories Owned by Franchisees in This Tier