Explanation

This risk was not identified. 9ROUND FRANCHISING, LLC (9Round Franchising) has been in operation since 2008 and franchising since 2009, indicating a long operational history. However, it is important to evaluate any new business model, like the 24-hour access model, as if it were a new system. An unproven concept carries higher risks, including the potential for misjudged market demand, operational challenges, and lower brand recognition, which could impact your success.

Potential Mitigations

• With your business advisor, carefully research the specific market demand for the 24-hour fitness model in your area.
• Engage an attorney to review the FDD and Franchise Agreement for any terms that might be particularly risky for a franchisee in a newer business model.
• It's prudent to speak with franchisees who have adopted the 24-hour model to understand their specific experiences and challenges.

Explanation

This risk was not identified. The core business of circuit-based kickboxing fitness has been established for many years. However, a business concept can still be a fad if its popularity is temporary and not sustained by long-term consumer demand. A franchisee could be left with a failing business if market interest wanes, even if they are still bound by a long-term franchise agreement. Assessing the long-term market viability is a crucial part of due diligence.

Potential Mitigations

• Your business advisor can help you research the fitness industry to gauge the long-term consumer demand for this specific type of workout.
• A discussion with the franchisor about their long-term vision and plans for innovation and adaptation is a worthwhile endeavor.
• It is important to speak with long-standing franchisees to assess the business's resilience through different economic cycles.

Explanation

This risk was not identified in the FDD. The executive team, including the CEO and COO, has been with the company since its inception in 2008, indicating significant experience. In any franchise, inexperienced management can pose a risk, as they may lack the expertise to provide adequate support, create effective systems, or make sound strategic decisions for the brand. This can lead to operational inefficiencies and a diminished value proposition for franchisees.

Potential Mitigations

• It's always a good idea to research the backgrounds of the key management personnel listed in Item 2 with your business advisor.
• Engage in conversations with current franchisees to get their perspective on the management team's competence and the quality of support provided.
• Your attorney can help you understand the contractual obligations of the franchisor regarding support and training.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that the franchisor is owned by a private equity firm. When a PE firm owns a franchise, there can be a focus on short-term profits over the long-term health of the system, potentially leading to increased fees, reduced support, or a quick sale of the company. These actions can negatively impact franchisee profitability and stability.

Potential Mitigations

• Researching the franchisor's ownership structure is a key due diligence step a business advisor can assist with.
• If PE ownership is discovered, consulting with an attorney to understand the terms related to the sale or assignment of the franchise is critical.
• Speaking with franchisees who have operated under PE-owned franchisors can provide valuable insight into potential challenges.

Explanation

This risk was not identified. The FDD discloses a parent company, 9Round Holding Company, LLC, and the franchisor's financial statements are audited and included. It is a risk when a franchisor is a thinly capitalized subsidiary and the parent company's financial information is not disclosed, as this can hide the true financial health and stability of the overall enterprise. Without parent financials, you may not have a complete picture of the resources available to support the franchise system.

Potential Mitigations

• Your accountant should always review the franchisor's financial statements for any notes regarding parent company guarantees or support.
• If a parent company exists, it is advisable to ask your attorney whether the parent's financial statements should have been included under franchise rules.
• A business advisor can help you investigate the history and standing of any parent company.

Explanation

This risk was not identified. The franchisor, 9Round Franchising, LLC, appears to be the original entity that has offered franchises since 2009. The FDD does not mention any predecessors from which it acquired the system's assets. When a franchisor has a predecessor, it's important to investigate that entity's history, including its litigation record and franchisee success rates, as past problems could be inherited by the new ownership.

Potential Mitigations

• An attorney can help verify the corporate history detailed in Item 1 to ensure no predecessor information is missing.
• If a predecessor is identified, a business advisor can assist in researching its history and reputation.
• In due diligence calls, asking long-tenured franchisees about their experience under any previous ownership is beneficial.

Explanation

Item 3 discloses one litigation action initiated by 9Round Franchising against a franchisee to collect liquidated damages after the franchisee voluntarily abandoned their locations. While this is not a pattern of franchisee-initiated fraud claims, it does show the franchisor is willing to litigate to enforce its contract. A significant number of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems.

Potential Mitigations

• Your attorney should carefully review the nature of any disclosed litigation to assess its potential impact on your business.
• It is wise to ask current franchisees about their perception of the franchisor's relationship with its franchisees and its approach to disputes.
• A business advisor can help you search public records for any litigation not disclosed in Item 3.