Explanation

This risk was not identified in the FDD Package. The franchisor has been offering franchises since 2008, indicating it is a mature system, not a startup. An unproven system can be risky because its business model, brand recognition, and support infrastructure have not been tested over time, which may lead to a higher rate of failure for franchisees.

Potential Mitigations

• For any franchise, a business advisor can help you investigate the franchisor's history and the system's track record.
• Your attorney should review the business experience of the management team as detailed in Item 2 of the FDD.
• An accountant's review of the franchisor's financial statements over several years can reveal the stability and maturity of the business.

Explanation

This risk was not identified in the FDD Package. The business operates in the real estate property management sector, which is a well-established industry, not a temporary trend. Investing in a fad business is risky because consumer interest can decline rapidly, leaving you with a potentially obsolete business and ongoing contractual obligations long after the trend has passed.

Potential Mitigations

• It is always wise to have a business advisor help you research the long-term market demand for any industry you consider entering.
• Your attorney can review the franchise agreement to understand your obligations if the business becomes less viable.
• Discussing the sustainability of the business model with your financial advisor can help assess its resilience to market changes.

Explanation

This risk was not identified in the FDD Package. The management team described in Item 2 has extensive and long-term experience with the company and in the property management industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate support for franchisees, even if the business concept itself is sound.

Potential Mitigations

• A business advisor can help you perform due diligence on the background and franchising experience of any franchisor's management team.
• Speaking with current franchisees about their direct experiences with the management team's competence and support is a valuable step.
• Your attorney can help you understand the experience details provided in Item 2 of any FDD.

Explanation

This risk was not identified in the FDD Package. The franchisor appears to be privately held and not owned by a private equity firm. Private equity ownership can introduce risks, as their typical focus on short-term returns and a defined exit timeline might lead to decisions, such as cutting support costs or increasing fees, that may not align with the long-term health of franchisees' businesses.

Potential Mitigations

• Your business advisor can help research the ownership structure of any franchise system you are considering.
• If a franchisor is owned by a private equity firm, consulting your attorney about the potential implications is a prudent step.
• Asking existing franchisees about any changes in the system since a private equity acquisition can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. The franchisor does not appear to be a subsidiary of a parent company. When a franchisor is a subsidiary, the financial health and influence of the parent company can be material. If a parent company's financials are not disclosed when required, it can hide risks related to the overall stability and backing of the franchise system.

Potential Mitigations

• Your attorney can help investigate the corporate structure of a franchisor to determine if a parent company exists.
• If a parent company is involved, an accountant should review both the franchisor's and the parent's financial statements.
• Understanding any guarantees or support obligations from a parent company requires careful review by legal counsel.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor has no predecessors. A history with predecessors can be a risk if the current franchisor acquired a troubled system. Negative history, such as litigation or high franchisee turnover under a predecessor, could indicate inherited systemic problems that might not be immediately apparent.

Potential Mitigations

• For any franchise, your attorney should carefully review Item 1 for any mention of predecessors.
• If predecessors exist, a business advisor can help you research their history and reputation.
• Talking to long-term franchisees who operated under a predecessor can reveal important information about the system's evolution.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of litigation, particularly lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag. It may signal systemic problems with the franchisor's sales practices, support obligations, or the viability of the business model itself.

Potential Mitigations

• A thorough review of Item 3 of any FDD with your attorney is a critical due diligence step.
• Your attorney can also conduct public record searches for litigation that may not be disclosed in the FDD.
• A business advisor can help you interpret the significance of any disclosed litigation in the context of the franchise system's size.