Explanation

This risk was not identified. The franchise system is not experiencing rapid growth; in fact, Item 20 tables show a significant net decrease in the number of franchised outlets over the past three years. When evaluating a franchise, rapid growth can sometimes strain a franchisor's resources, leading to inadequate support for new franchisees. In this case, the risk appears to be contraction rather than unsustainable expansion, which presents its own set of challenges.

Potential Mitigations

• Engage a business advisor to discuss the implications of a shrinking system versus a rapidly growing one.
• Your accountant should review the franchisor's financials in Item 21 to assess how system contraction is affecting their financial health.
• Discussing the system's current size and future growth plans with your franchise attorney can provide valuable context.

Explanation

This risk was not identified. Aerus and its predecessor, Electrolux, have been in business for many decades, as disclosed in Item 1. The management team detailed in Item 2 also shows long tenures in the industry. However, while the business is established, the high rate of franchisee turnover shown in Item 20 could suggest that the current franchise model itself may have challenges that a long history does not fully mitigate.

Potential Mitigations

• A business advisor can help you weigh the benefits of an established brand against the risks indicated by recent franchisee turnover.
• Your attorney should review the history of the franchisor and its predecessors as described in Item 1.
• Discuss the management team's experience with your business advisor to assess their capability to manage the current system challenges.

Explanation

This business does not appear to be based on a short-term fad. The company operates in the long-established home and business environment sector, offering air purification, water treatment, and floor care products. While specific products may evolve, the core consumer and business needs for clean air, water, and floors are perennial. The risk of the entire business concept becoming obsolete due to a passing trend seems low, although competition and technology will continuously evolve.

Potential Mitigations

• Research the long-term market trends for home and commercial environmental products with your business advisor.
• Your financial advisor can help you assess the stability of consumer demand for these types of products through various economic cycles.
• Discuss the company's history and product evolution with existing franchisees to gauge its adaptability over time.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives of Aerus have extensive, long-term experience with the company and within the industry, with some tenures spanning decades. In a franchise investment, inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support. The extensive experience of this management team appears to be a potential strength, though it does not eliminate other business risks.

Potential Mitigations

• A business advisor can help you evaluate the management team's experience as detailed in Item 2 in the context of the overall franchise opportunity.
• When speaking with current franchisees, inquire about their direct experiences with the management team's leadership and support.
• Your attorney can review Item 2 to ensure all required disclosures about management have been made.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies, Aerus LLC and ActivePure Technologies, LLC. The FDD includes audited financial statements for the franchisor entity itself. While the parent company's financials are not included, the franchisor entity appears to be the primary obligor under the Franchise Agreement. Evaluating the stability of a franchise system often requires understanding the financial health of parent companies, especially if they provide essential services or guarantees.

Potential Mitigations

• Your accountant should review the provided franchisor financials and the notes on related-party transactions to understand the relationship with the parent.
• An attorney can clarify which entity is responsible for key obligations under the Franchise Agreement.
• It is wise for a business advisor to help you research the parent companies to better understand the overall corporate structure and health.

Explanation

This risk was not identified. Item 1 discloses the company's history, tracing its lineage back to Electrolux, and explains the name change to Aerus. Items 3 and 4 do not indicate any bankruptcy or significant negative litigation history specifically associated with a predecessor that is being obscured. A complete understanding of a franchisor's predecessor is important, as it can reveal historical challenges or unresolved issues that may still affect the system today.

Potential Mitigations

• Your attorney should confirm that the predecessor information in Item 1 appears complete and consistent with other disclosures.
• When speaking with long-term franchisees, asking about their experience under any previous ownership can provide valuable insight.
• A business advisor can help you research the history of the brand and its predecessors for a more complete picture.