Explanation

This specific risk was not identified in the FDD package. The franchisor's audited financial statements in Item 21 do not show signs of instability such as a going concern note or negative net worth. However, it is always important for a prospective franchisee to understand the financial health of their potential partner, as a financially weak franchisor may struggle to provide promised support or invest in the brand's growth, affecting your business's potential.

Potential Mitigations

• A thorough review of the franchisor's financial statements for the last three years with your accountant is essential to assess financial trends and stability.
• It is wise to have your accountant help you understand the footnotes to the financial statements, as they often contain critical details.
• Engaging a business advisor can help you interpret the financial data in the context of the franchisor's overall business strategy.

Explanation

Item 20 tables show a consistent decline in the total number of franchised outlets over the past three years, which is the opposite of rapid growth. While this avoids the risks associated with over-expansion, it presents the separate risk of a shrinking system. Therefore, the specific risk of rapid, unsupportable growth was not identified. A franchisee should still evaluate if the franchisor has adequate resources to support the existing system and any future growth initiatives.

Potential Mitigations

• An accountant can help you review the franchisor’s financial statements in Item 21 to assess if they are investing sufficiently in franchisee support systems.
• Discussing the franchisor's growth and support strategy with a business advisor will provide valuable context.
• It is prudent to ask current franchisees about the quality and responsiveness of the support they receive from the franchisor.

Explanation

This risk was not identified. The FDD indicates that Alliance Franchise Brands LLC (AFB) and its predecessors have been involved in franchising for many years, managing multiple brands in the printing and marketing sector. The disclosures in Items 1, 2, and 20 show a long history and extensive experience in the industry. An unproven system would typically have a much shorter operating history and fewer established franchisees, posing a different set of risks.

Potential Mitigations

• Verifying the business experience of the key executives listed in Item 2 with a business advisor can provide additional confidence.
• Your attorney should still review the corporate history in Item 1 to understand the role of any predecessors or affiliates.
• Speaking with long-term franchisees can offer insights into how the system has evolved and been managed over time.

Explanation

This risk appears to be low. The core business of providing marketing, printing, and mailing services has a long history of sustained demand from a wide variety of business clients. While technology and methods change, the fundamental need for business communication services is not typically considered a fad. Item 1 and Item 11 suggest a business model that adapts to new technologies like digital marketing rather than one based on a transient trend.

Potential Mitigations

• To better assess long-term market viability, you can conduct independent market research with the help of a business advisor.
• It is wise to evaluate the franchisor's commitment to research and development, as outlined in Item 11, with your accountant.
• Discussing industry trends with current franchisees can provide valuable on-the-ground perspective on the business's sustainability.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the franchisor's key management personnel, showing that many executives have extensive, long-term experience within the company and the franchising industry. Inexperienced management is a significant risk in other systems, as it can lead to poor strategic decisions and inadequate support, but that specific concern does not appear to be present here based on the disclosures.

Potential Mitigations

• Your business advisor can still help you research the public reputation and track record of the management team.
• It is always prudent to ask current franchisees about their direct experiences with the leadership team's competence and support.
• An attorney can review Item 2 for any concerning details that may not be immediately apparent.

Explanation

This specific risk was not identified. Item 1 indicates that the ultimate parent company is Alliance Franchise Holdings LLC, but there is no disclosure of ownership by an external private equity firm. Therefore, the specific risks associated with a PE firm's typical investment horizon and focus on short-term returns do not appear to be present. The franchisor's ownership structure seems to be internal to the larger franchise-focused holding company.

Potential Mitigations

• Your attorney can help you investigate the franchisor's corporate structure to confirm the ownership and identify any outside controlling interests.
• A business advisor can help you understand the potential implications of any future sale of the company, which is always a possibility.
• It is wise to ask the franchisor about their long-term vision for the brand and any potential plans for a sale.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Alliance Franchise Holdings LLC, and other affiliates. The audited consolidated financial statements for the franchisor, Alliance Franchise Brands LLC and its subsidiaries, are provided in Item 21 and Exhibit O. There is no indication that required financial statements for a parent or guarantor have been improperly withheld, as the provided financials appear to cover the primary operating entities.

Potential Mitigations

• A review of the corporate structure detailed in Item 1 with your attorney is important to understand the relationships between affiliated companies.
• Your accountant should confirm that the provided financial statements in Item 21 comply with all disclosure requirements.
• It is beneficial to ask your attorney to review any parent guarantees mentioned in the FDD or franchise agreement.

Explanation

This risk was not identified in the FDD. Item 1 provides a detailed history of the franchisor's predecessors and affiliates, including mergers and acquisitions of other brands like Signs Now and KKP Canada. Item 3 and Item 4 appear to disclose litigation and bankruptcy history for these entities as required. While the history is complex, it does not appear that negative information has been improperly omitted or obscured. A complex history, however, always warrants careful review.

Potential Mitigations

• A thorough review of the corporate lineage described in Item 1 with your attorney is crucial to understanding the system's history.
• Your business advisor can help you research the public history of predecessor companies for additional context.
• Asking long-time franchisees about their experiences under previous ownership structures can provide valuable insights.

Explanation

This risk was not identified. Item 3 discloses two concluded legal actions. One was initiated by a franchisee against a former affiliate (SGO) and was settled. The other was an arbitration initiated by the franchisor against a former franchisee for non-payment, which also settled. While any litigation is noteworthy, this disclosure does not show a significant pattern of franchisee-initiated lawsuits alleging fraud, misrepresentation, or other systemic problems, which would be a more serious red flag.

Potential Mitigations

• Your attorney should carefully review the nature and outcome of any litigation disclosed in Item 3.
• It's wise to ask current franchisees if they are aware of any widespread disputes with the franchisor, even those not rising to the level of litigation.
• A business advisor can help you assess whether the disclosed litigation points to any underlying operational issues.