Explanation

This risk was not identified in the FDD Package. The franchise system has been shrinking in recent years, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support to its franchisees, so its absence here is noteworthy. However, a shrinking system presents its own set of risks regarding brand health and market presence.

Potential Mitigations

• You should discuss the reasons for the system's recent contraction with the franchisor and current franchisees.
• A business advisor can help you evaluate the long-term viability and brand strength of a shrinking franchise system.
• Your attorney can help you understand any contractual obligations that remain even if the system's market presence declines.

Explanation

This risk was not identified in the FDD package. The franchisor, Aerus Franchising, LLC, has been franchising since 2002, and its predecessor brand has a history dating back to 1924. This indicates a long-established business and not a new or unproven franchise system. An unproven system would present higher risks regarding the viability of the business model and support structures.

Potential Mitigations

• When evaluating any franchise, it's wise to have your business advisor assess the franchisor's full history and track record.
• Speaking with long-tenured franchisees can provide insight into the evolution and stability of the business model.
• An attorney can help review the FDD for any information regarding predecessor companies and their operational history.

Explanation

This risk was not identified in the FDD package. The business operates in the established markets of air purification, water purification, and floor care. These industries cater to long-term consumer needs for health and home maintenance, rather than a short-lived trend or fad. Investing in a fad business carries the risk of declining consumer interest after an initial surge, potentially jeopardizing the long-term investment.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand and competitive landscape for any industry you consider entering.
• When analyzing an opportunity, ask the franchisor about their plans for future product and service innovation.
• Your accountant can help you model the financial resilience of a business in the face of changing consumer trends.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives of the franchisor have extensive and long-term experience with the company and within the industry. An inexperienced management team can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees. The disclosed experience of the management team appears to be a positive factor.

Potential Mitigations

• When reviewing any FDD, it is important to have your attorney and business advisor carefully scrutinize the backgrounds of the key management personnel listed in Item 2.
• Discussing the management team's reputation and accessibility with current franchisees is a valuable due diligence step.
• Assessing the management's direct experience in franchising, not just the industry, can provide insight into their ability to support a franchise network.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is owned by another limited liability company, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives that may not align with the long-term health of franchisees. The absence of this ownership structure may suggest a different set of strategic priorities for the franchisor.

Potential Mitigations

• It is always prudent to have your attorney help you understand the complete ownership structure of the franchisor as disclosed in Item 1.
• Researching the history and reputation of any parent company can provide valuable context, a task your business advisor can assist with.
• Asking current franchisees about any recent changes in ownership and the impact on the system is a key part of due diligence.

Explanation

This risk was not identified in the FDD package. The franchisor's history, including its transition from the "Electrolux" brand rights, is disclosed in Item 1. There is no indication of undisclosed or problematic history related to predecessor companies. A hidden or negative history with a predecessor could mask underlying issues with the franchise system's long-term viability or management.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessor companies and their history.
• Independent research into any named predecessors can sometimes uncover valuable information, a task your business advisor could assist with.
• Asking long-term franchisees about their experience under any previous ownership or brand name is a wise due diligence step.