Explanation

This risk was not identified, as the franchise system is very new. Item 20 tables show no franchise terminations, non-renewals, or cessations of operation. However, because only one franchise has been operating for a short period, this data is not yet a meaningful indicator of system health or franchisee satisfaction. High turnover in future years would be a significant red flag indicating potential systemic problems, such as lack of profitability or poor support.

Potential Mitigations

• It is crucial to contact the first few franchisees as they open to monitor their progress and satisfaction with the system, with guidance from your business advisor.
• Your attorney should advise you to request and review future FDDs annually to track franchisee turnover rates as the system grows.
• Developing a strong relationship with other franchisees can provide early warnings of systemic issues; your business advisor can help you network.

Explanation

This risk is not currently present, as Item 20 shows very slow initial growth, with only one franchised outlet open. However, should the franchisor's growth accelerate significantly, its weak financial position, as seen in Item 21, could present a substantial risk. Rapid expansion could strain its limited resources, potentially leading to a degradation of the training, support, and other services you rely on, for which you pay royalties.

Potential Mitigations

• Question the franchisor on its specific plans for scaling support infrastructure to match future growth, a topic to discuss with your business advisor.
• Your accountant should periodically review the franchisor's financial health in future FDDs to see if it can support a larger system.
• Maintaining communication with other franchisees can provide insight into whether support levels are keeping pace with system growth.

Explanation

This risk was not identified in the FDD package. The business of selling and installing fences is a traditional home service with consistent demand and is not typically considered a fad. A fad business is often tied to a fleeting trend, which could leave you with a worthless business and ongoing contractual obligations after consumer interest disappears. This does not appear to be a concern with this particular franchise concept.

Potential Mitigations

• Engaging a business advisor to research the long-term stability of the local home services market is a prudent step.
• Your accountant can help you analyze the seasonality and economic sensitivity of the fencing industry in your area.
• To gauge market sustainability, you could speak with independent local fencing contractors about their business history and trends.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is a privately held limited liability company and does not disclose any ownership by a private equity firm. Such ownership can sometimes lead to a focus on short-term profits and a quick exit strategy over the long-term health of the franchisees and the brand. Since this structure is not present, this specific risk does not apply.

Potential Mitigations

• It remains prudent to have your attorney confirm the ownership structure of the franchisor during due diligence.
• A discussion with your business advisor can help you understand the pros and cons of different franchisor ownership structures.
• Inquiring about the long-term vision of the current owners can provide valuable insight into their commitment to the system.

Explanation

This risk was not identified. The FDD does not disclose the existence of a parent company. 76 Franchise Group appears to be the primary entity. Therefore, the risk of a parent's financial instability being hidden, or the failure to provide required parent company financials, is not applicable in this case. The financial risk is contained entirely within the franchisor entity itself, whose financials are provided in Item 21.

Potential Mitigations

• Your attorney should still verify the franchisor's corporate structure to confirm the absence of any undisclosed controlling entities.
• An accountant can help you analyze the provided financials to ensure the franchisor is adequately capitalized on its own.
• A business advisor can assist in researching the principals to understand their financial backing and commitment.

Explanation

This risk was not identified in the FDD. Item 3 states, "No litigation is required to be disclosed in this item." The absence of disclosed litigation, particularly claims of fraud or breach of contract from other franchisees, is a positive indicator. However, as the system is very new, a history of litigation has not had time to develop. Future FDDs should be monitored for any changes.

Potential Mitigations

• Although none is disclosed, your attorney can conduct independent public record searches for litigation involving the franchisor or its principals.
• Engaging with early franchisees can provide anecdotal evidence of any disputes that have not yet resulted in formal litigation.
• A business advisor can help you research the litigation history of other franchise systems managed by the same principals.