Explanation

The FDD does not indicate a high turnover rate of operating franchises. However, Item 20 and Exhibit E do show that four franchise agreements were terminated because the franchisees never opened an outlet. This points to potential challenges in the pre-opening phase, a risk that should be evaluated separately. Monitoring franchisee turnover is important as it can indicate systemic issues with profitability or support.

Potential Mitigations

• Speaking with a number of current and former franchisees from the lists in Item 20 is essential to understand their experiences.
• Your business advisor can help you calculate the true turnover rate and compare it to industry averages for context.
• It is wise to ask the franchisor directly about the circumstances surrounding any terminations, transfers, or non-renewals.

Explanation

This risk was not identified. The business model, focused on small-group personal training for a specific demographic, appears to be based on established fitness industry trends rather than a fleeting fad. However, any business is subject to changing consumer preferences. The long-term success of this specific application of the model is not guaranteed.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for boutique fitness and personalized training.
• It is important to evaluate the franchisor's commitment to innovation and adapting the business model over time.
• A discussion with your financial advisor can help assess the business's resilience to economic shifts.

Explanation

This risk was not identified. The key executives listed in Item 2, such as the CEO, COO, and VP of Club Operations, appear to have significant and long-term experience within the fitness industry and with the Alloy brand itself, some dating back to the 1990s and early 2011. This suggests a stable and experienced leadership team is in place.

Potential Mitigations

• Engage a business advisor to independently verify the backgrounds of the management team.
• When speaking with franchisees, ask about their perception of the management team's competence and leadership.
• It is still prudent to have your attorney review the FDD for any potential concerns related to management structure.

Explanation

This risk was not identified, as Item 1 does not disclose ownership by a private equity firm. The franchisor is a limited liability company, and its principals appear to be the key executives. However, the structure of franchise agreements often allows for the sale of the system, so a future sale to a PE firm remains a possibility.

Potential Mitigations

• Your attorney should review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold.
• A business advisor can help you understand the potential impacts of private equity ownership in franchise systems.
• You might ask the franchisor about any long-term plans regarding the ownership structure of the company.

Explanation

This risk was not identified. Item 1 clearly identifies the franchisor, Alloy Personal Training, LLC, and its affiliates. There is no indication of a parent company whose financials would be material to understanding the investment risk. The franchisor's own audited financial statements are provided in Exhibit G.

Potential Mitigations

• An attorney can confirm the corporate structure and ensure that all relevant entities have been properly disclosed.
• Your accountant should verify that the provided financial statements are sufficient for a complete financial picture of the franchisor.
• Always ask your business advisor to be wary of complex corporate structures designed to obscure financial realities.

Explanation

This risk was not identified. Item 1 of the FDD does not list any predecessors for the franchisor, Alloy Personal Training, LLC. The document describes the history of affiliates who operated similar businesses or licensed intellectual property, but not in a way that would constitute a predecessor under franchise law. Therefore, there is no hidden history of predecessor failure to analyze.

Potential Mitigations

• Your attorney can review the history described in Item 1 to confirm the absence of any legal predecessors.
• A business advisor can help you research the history of the affiliate companies for additional context on the brand's background.
• When speaking to long-term employees or associates of the brand, inquire about the company's full history.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates an absence of a pattern of material lawsuits involving the franchisor, particularly those alleging fraud or misrepresentation. A clean litigation history is a positive indicator, though it does not guarantee future disputes will not arise.

Potential Mitigations

• An attorney can perform an independent public records search to confirm the absence of litigation.
• When speaking with current and former franchisees, it is always a good practice to inquire about any disputes or legal issues.
• You should understand the dispute resolution process outlined in the Franchise Agreement with your attorney, in case a future issue arises.