Explanation

This risk was not identified in the FDD package. The franchise system has experienced slow to moderate growth in the number of outlets over the past three years. Rapid, unsustainable growth can strain a franchisor's ability to provide adequate support, so a measured pace of expansion is often a positive sign for prospective franchisees.

Potential Mitigations

• Reviewing the franchisor's growth plans and support infrastructure with a business advisor can help assess if they are prepared for future expansion.
• An inquiry with your attorney regarding the franchisor's obligations for support as the system grows is a good practice.
• An accountant can help analyze if the franchisor's financial resources, as shown in Item 21, are sufficient to support projected new units.

Explanation

This specific risk was not identified. The FDD package indicates the franchisor and its parent companies have extensive experience in the hotel industry and have been franchising this and other brands for many years. Investing in a new or unproven system carries higher risks, as the business model may not be validated and the support systems may be underdeveloped.

Potential Mitigations

• It is always a good practice for your attorney to review the corporate history and structure detailed in Item 1.
• A business advisor can help you research the brand's reputation and history within the hotel industry.
• Verifying the management team's experience in Item 2 with an advisor can provide further confidence in their capabilities.

Explanation

The franchise operates in the well-established hotel and lodging industry, which is not considered a fad. A fad-based business can be risky because its popularity may be short-lived, potentially leaving you with a worthless business and ongoing contractual obligations after consumer interest fades. This franchise concept appears to be based on a conventional and enduring business model.

Potential Mitigations

• A business advisor can help you assess the long-term consumer demand for this specific hotel market segment.
• Understanding the competitive landscape for economy and midscale hotels in your target market is a crucial step to perform with a real estate professional.
• An accountant can help you model financial scenarios based on different occupancy and room rate assumptions.

Explanation

This risk was not identified. Item 2 of the FDD details the backgrounds of the franchisor's key executives, who appear to possess extensive experience in the hotel, real estate, and franchise industries. Inexperienced management can pose a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees, but that does not appear to be a concern here.

Potential Mitigations

• It is still valuable to review the executive team's biographies in Item 2 with a business advisor to understand their specific backgrounds.
• Asking current franchisees about their direct experiences with the management team can provide insight into their operational effectiveness.
• Your attorney can help you research the public track record of key executives and parent companies.

Explanation

This risk was not identified. The FDD clearly discloses the parent companies in Item 1, provides audited financial statements for the parent guarantor in Item 21 (Exhibit F), and includes a copy of the parent's guaranty in Exhibit G. Proper disclosure of parent companies and their financial standing is crucial for you to assess the overall stability and resources behind the brand.

Potential Mitigations

• Your attorney should always verify that the parent company's identity and any related guarantees are clearly disclosed.
• It is a good practice for an accountant to review the financial statements of any parent entity that guarantees the franchisor's performance.
• Ensuring all related agreements, like a parent guaranty, are included as exhibits is a key due diligence step for your attorney.

Explanation

This risk was not identified as an issue of non-disclosure. Item 1 details the franchisor's history, including its previous names and its acquisition of the Americas Best Value Inn brand from a predecessor. The FDD appears to properly disclose the lineage of the brand and related litigation history. A lack of transparency about predecessors can hide past systemic problems or legal troubles.

Potential Mitigations

• A review of the company's acquisition history in Item 1 with your attorney can provide context for the current system.
• It is useful to ask long-term franchisees about their experiences under any previous owners or brand names.
• A business advisor can help research the public reputation of any predecessor companies mentioned in the FDD.