Explanation

This risk was not identified in the FDD package, as Item 20 tables show no franchisee terminations, non-renewals, or other cessations of business. This is expected for a very new system. However, high franchisee turnover in an established system can be a major red flag, often indicating systemic problems such as a lack of profitability, poor support from the franchisor, or a flawed business model. You should monitor this data in future FDDs.

Potential Mitigations

• In any franchise consideration, a thorough review of the Item 20 tables for trends in terminations, non-renewals, and 'ceased operations' with your accountant is vital.
• A crucial due diligence step is to contact former franchisees, whose information is in the FDD, to understand why they left the system.
• Your attorney can help you analyze the data and frame questions for the franchisor about any concerning turnover rates.

Explanation

This specific risk was not identified. The business of pavement marking and striping is a long-established service industry with consistent demand from commercial properties, municipalities, and contractors. It is not based on a fleeting trend or novelty product, so the risk of the entire business concept becoming obsolete due to changing consumer tastes is low. However, you should always consider how technological changes or environmental regulations could impact the industry's future.

Potential Mitigations

• A business advisor can help you research the long-term stability and demand drivers for any industry you consider entering.
• Always assess a franchisor's commitment to research and development to ensure the business model can adapt to future market changes.
• Consider how resilient the business model is to economic downturns with help from your financial advisor.

Explanation

This risk was not identified in the FDD package. The disclosure in Item 1 does not indicate that Striper is owned or controlled by a private equity firm. A franchise owned by a private equity fund may face unique pressures, as these firms often have specific investment timelines and return-on-investment goals that can sometimes conflict with the long-term health of the individual franchisees. Their focus can sometimes be on short-term profits and a quick exit.

Potential Mitigations

• When evaluating a franchise, asking your business advisor to help you research the ownership structure is a wise step.
• If a private equity firm is involved, it is beneficial to investigate the firm's history with other franchise brands it has owned.
• Your attorney should review contract terms related to the sale or assignment of the franchise system, which can be more likely under PE ownership.

Explanation

This risk was not identified. The FDD discloses the relevant parent and affiliate companies in Item 1, such as Striper Holdings, Inc., which owns the intellectual property. Because the franchisor's financials are weak, the stability of these affiliates is particularly important. However, there is no indication that a required parent company's financial information has been omitted.

Potential Mitigations

• Your accountant should review the disclosed affiliate relationships to understand how they impact the franchisor's business and your potential costs.
• It is important for your attorney to confirm if any affiliate is providing a guarantee for the franchisor's performance.
• If a parent company's financials are provided, they should be reviewed by your accountant with the same scrutiny as the franchisor's.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessor entities from which Striper acquired its assets or that previously operated the franchise system. When a franchisor has a predecessor, it is important to scrutinize the business history of that entity, including its litigation, bankruptcy, and franchisee turnover records, to understand any inherited systemic issues.

Potential Mitigations

• Your attorney should always carefully review Item 1 of any FDD to identify predecessors and understand their history.
• If a predecessor exists, researching their public records and reputation can provide valuable context for your business advisor.
• Speaking with franchisees who operated under a predecessor is a key due diligence step to uncover historical problems.

Explanation

This risk was not identified, as Item 3 of the FDD discloses no material litigation involving the franchisor, its predecessors, or its management. A pattern of litigation, especially lawsuits brought by franchisees alleging fraud, misrepresentation, or breach of contract, can be a significant warning sign of systemic problems. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees might suggest an overly aggressive or litigious culture.

Potential Mitigations

• In any FDD, having your attorney carefully review the details of all disclosed litigation in Item 3 is a critical step.
• Even if no litigation is disclosed, a business advisor can help you conduct online searches for news reports or franchisee complaints.
• Always ask current and former franchisees about their experiences with disputes and how the franchisor handles disagreements.