Explanation

The franchise system is experiencing rapid growth, expanding from 10 to 32 franchised outlets between the start of 2023 and the end of 2024. While growth can be positive, such a rapid expansion, especially when combined with the financial weaknesses noted in Item 21, might strain ASF's ability to provide adequate training, site selection assistance, and ongoing operational support to all franchisees. Quality control could be compromised during this phase.

Potential Mitigations

• Questioning the franchisor about their specific plans to scale support staff and infrastructure to match outlet growth is an important step for your business advisor to take.
• It would be prudent to contact both new and established franchisees to gauge their current satisfaction with the level and quality of support.
• Your franchise attorney should review the support obligations outlined in Item 11 to understand what is contractually guaranteed versus discretionary.

Explanation

ASF was formed in 2019 and began franchising shortly thereafter, making it a relatively new franchise system. While its affiliate, AWS, has operated similar businesses since 2010, ASF itself has limited history as a franchisor. A newer system presents higher risks, including less-developed support structures, unproven long-term market acceptance of the franchised model, and minimal brand recognition. The financial statements also reflect a company still in its early stages.

Potential Mitigations

• A business advisor should help you conduct extensive due diligence on the specific experience of the management team in both the industry and in franchising.
• Speaking with the earliest franchisees from the list in Exhibit F can provide critical insights into the system's evolution and the franchisor's performance.
• An accountant can help you assess whether the franchisor is sufficiently capitalized to support the system through its growth phase.

Explanation

The dual-brand offering of residential/commercial junk removal (JUNK SHOT) and multi-family valet trash (DOORSTEP DETAILS) operates in established, competitive markets. While trash services are a consistent need, the specific business models may face pressure from numerous local, regional, and national competitors. The long-term profitability and competitive advantage of ASF's specific system and technology have not been demonstrated over multiple economic cycles, which presents a risk compared to more established concepts.

Potential Mitigations

• Engaging a business advisor to conduct a thorough analysis of the local competition for both junk removal and valet trash services is crucial.
• You should evaluate the sustainability and unique value proposition of ASF's technology and methods compared to competitors.
• Developing a robust local marketing plan with a marketing professional can help you effectively differentiate your services in a crowded market.

Explanation

ASF, the franchisor entity, was formed in 2019 and has never directly operated a business of the type being franchised. While its affiliate and key executives have extensive experience in the industry since 2010, their experience specifically in managing a franchise system and supporting franchisees is relatively short. This could lead to challenges in areas like franchisee support, marketing fund management, and system-wide strategic development, which are different from simply running a corporate-owned operation.

Potential Mitigations

• During your due diligence calls, asking current franchisees about the quality and responsiveness of the franchise support systems is essential.
• A business advisor can help you assess whether the management team has hired experienced franchise professionals to supplement their operational expertise.
• Understanding the specific franchise support structure, not just the operational side, should be a key focus of your discussions with the franchisor.

Explanation

ASF discloses its affiliate, Accelerated Waste Solutions of North America, LLC (AWS), which owns the trademarks and has a longer operating history. However, the FDD does not include the financial statements of AWS. While not necessarily a violation, not seeing the financials of this key affiliate, which is the source of the brand and has a significant intercompany loan balance with ASF, limits your ability to fully assess the financial strength of the entire enterprise.

Potential Mitigations

• Your attorney should inquire why the affiliate's financial statements are not included, given its central role and financial relationship with the franchisor.
• An accountant should analyze the 'Due to affiliate' liability on ASF's balance sheet and assess its potential impact on ASF's financial stability.
• It is important to understand the terms of the license agreement between AWS and ASF, which your attorney can help clarify.