Explanation

This risk was not identified in the FDD Package. 911 Restoration began offering franchises in 2007, so it is an established system, not a new or unproven one. For new franchise systems, there is a higher risk of failure due to unproven business models, lack of brand recognition, and undeveloped support structures, which can jeopardize a franchisee's investment. This does not appear to be a primary concern here.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor assess the system's age and track record.
• An attorney should be consulted to review the FDD for disclosures related to the franchisor's operating history.
• Your accountant can analyze the financial statements for signs of maturity and stability.

Explanation

This risk was not identified in the FDD Package. The business provides emergency restoration and cleaning services, which are based on recurring needs rather than a short-term trend. A fad business carries the risk that consumer interest will decline, potentially leading to business failure even if you are contractually obligated to continue operating and paying fees. This does not appear to apply to this opportunity.

Potential Mitigations

• A business advisor can help you conduct market research to determine if a business concept has long-term, sustainable demand.
• Before investing, it's wise to consider with a financial advisor how a business might perform through different economic cycles.
• An attorney should review the franchise term to ensure you understand your long-term commitment.

Explanation

This risk was not identified in the FDD Package. The key executives listed in Item 2, particularly the CEO and Director of Franchise Support, appear to have significant tenure with the company and relevant industry experience. While some sales roles have seen recent changes, the new personnel bring prior franchising experience. Inexperienced management can be a major risk, leading to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• It is always a good practice to have a business advisor help you research the backgrounds of the franchisor's key management team.
• Speaking with current franchisees can provide insight into the competence and effectiveness of the management team.
• Your attorney can help you formulate questions for the franchisor about their team's experience in both the industry and in franchising.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. When a franchise is PE-owned, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of the franchisees and the brand, which can manifest as reduced support, increased fees, or pressure to use affiliated vendors.

Potential Mitigations

• A business advisor can help you investigate the ownership structure of any franchisor you are considering.
• If a franchisor is owned by a private equity firm, an attorney should be consulted to understand any related risks in the Franchise Agreement.
• Speaking with franchisees of a PE-owned brand can provide insight into how ownership has impacted operations and support.

Explanation

This risk was not identified in the FDD Package. The FDD clearly states in Item 1 that 911 Restoration has no parent company. The franchisor entity is providing its own audited financial statements as required. Non-disclosure of a parent entity that guarantees obligations or controls the franchisor can obscure significant financial or operational risks from a prospective franchisee, but that does not appear to be the case here.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1.
• If a parent company exists and provides a guarantee, your accountant must review the parent's financial statements.
• A business advisor can help you understand the relationships between a franchisor and any affiliated companies.

Explanation

This risk was not identified in the FDD Package. The franchisor explicitly states in Item 1 that it has no predecessors. A predecessor is a company from which the franchisor acquired a major part of its assets, and a history of issues with a predecessor could be a red flag. While the FDD discloses an affiliate with a litigation history, it does not meet the technical definition of a predecessor, so this specific risk is not triggered.

Potential Mitigations

• An attorney should carefully review Item 1 for any mention of predecessors and their history.
• A business advisor can help you research the history of the brand, even if no formal predecessor is listed.
• Always review the litigation history in Item 3 for cases involving the franchisor or any of its affiliates.