Explanation

This risk was not identified in the FDD Package. The franchisor, Amada Franchise, Inc. (Amada), has been franchising since 2012 and has a substantial number of outlets. This indicates an established system with a significant operational track record. An unproven system would present higher risks related to the viability of the business model and the adequacy of support, as there would be limited history to evaluate.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your business advisor assess the franchisor's history and the maturity of its systems.
• Speaking with the earliest-opening franchisees can provide insight into how the system has evolved and handled challenges.
• An accountant should always review the financial track record to gauge stability, which is especially critical for newer systems.

Explanation

This risk was not identified in the FDD Package. The senior care industry is based on a long-term demographic trend of an aging population, which suggests sustained consumer demand rather than a short-term fad. The business model provides essential daily living assistance, placement, and healthcare staffing services, which are established and necessary services. A fad-based business carries a high risk of failure once consumer interest fades, leaving you with a worthless investment.

Potential Mitigations

• A business advisor can help you research long-term market trends and the sustainability of any industry before investing.
• It is wise to evaluate a franchisor's plans for innovation and adaptation to ensure the business can remain relevant over time.
• Your financial advisor should help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have been with the company since its inception in 2012 and have extensive experience in the senior care industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, underdeveloped systems, and inadequate support for franchisees. This franchisor's leadership appears to have a long and relevant track record in the specific business being franchised.

Potential Mitigations

• With any franchise, your business advisor should help you vet the management team's experience in both the industry and in franchising.
• Speaking with existing franchisees is a good way to gauge the competence and responsiveness of the leadership team.
• Your attorney can help you understand the stability of the management team and any recent changes.

Explanation

This risk was not identified in the FDD Package. Item 1 and Item 2 do not indicate that the franchisor is owned by a private equity firm. The leadership team appears to consist of the company's founders and long-term executives. Private equity ownership can sometimes introduce risks related to a focus on short-term returns, which may not always align with the long-term health of franchisees.

Potential Mitigations

• It is always a good practice to ask your business advisor to research the ownership structure of a franchisor.
• If a franchisor is owned by a private equity firm, speaking with franchisees about changes since the acquisition is critical.
• Your attorney can help you understand any clauses in the Franchise Agreement that give the franchisor broad rights to sell the system.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses the existence of several parent and affiliate companies, and the financial statements in Item 21 are presented on a consolidated basis, which is the proper accounting treatment. Failing to disclose a parent company or provide its financial statements when required can obscure the true financial health and backing of the franchise system, creating a significant hidden risk for a potential franchisee.

Potential Mitigations

• Your accountant should always verify that the financial statements provided are for the correct legal entity and are properly audited and consolidated if necessary.
• If a franchisor is a subsidiary, your attorney should confirm whether a guarantee from the parent company is provided and if it is sufficient.
• A business advisor can help investigate the corporate structure to ensure all relevant entities have been disclosed.

Explanation

This risk was not identified in the FDD Package. Amada Franchise, Inc. was formed in 2012 and does not list any predecessors in Item 1. Therefore, there is no history from a prior entity to consider. When a franchisor has predecessors, it is important to review their history for any red flags, such as litigation, bankruptcy, or high franchisee turnover, as these could indicate historical problems with the system that may have been carried over.

Potential Mitigations

• When a franchisor has a predecessor, it is crucial for your attorney to review Items 1, 3, and 4 for any negative history.
• A business advisor can help you research a predecessor's track record to understand the system's history.
• Asking long-term franchisees about their experience under any prior ownership can provide valuable insights.