Explanation

This specific risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees. If a franchisor expands too quickly without scaling its support infrastructure, new franchisees may find the promised assistance is unavailable or substandard, which could negatively impact their launch and ongoing operations. Diligent review of Item 20 growth tables and franchisee interviews are key to assess this risk.

Potential Mitigations

• Asking a business advisor to assess whether a franchisor's support staff and systems are growing in line with its unit count is a useful exercise.
• Engaging with a range of franchisees, both new and established, can provide insight into the consistency and quality of the franchisor's support.
• An accountant should be consulted to analyze if the franchisor's financial statements show sufficient reinvestment in support infrastructure.

Explanation

This specific risk was not identified in the FDD Package. A business concept tied to a short-lived trend or fad presents a significant long-term risk. Once public interest wanes, sales can plummet, potentially leading to business failure. Even if the trend disappears, your contractual obligations to the franchisor, such as paying fees and operating under their system, typically remain for the full term of the agreement.

Potential Mitigations

• Engaging a business advisor to conduct independent market research can help assess the long-term consumer demand for the product or service.
• You should evaluate the franchisor's stated plans for research, development, and innovation to see how they plan to evolve beyond the current trend.
• Speaking with an accountant can help you model the financial viability of the business under different, more conservative long-term sales scenarios.

Explanation

This specific risk was not identified in the FDD Package. Item 2 indicates that the franchisor's key officers have substantial experience with the Amorino brand, some since its founding in 2002. Franchisors with inexperienced management can pose a risk, as they may lack the expertise to provide effective support, create robust systems, or make sound strategic decisions, potentially harming the entire franchise network.

Potential Mitigations

• A business advisor can help you vet the backgrounds of a franchisor's key management team for relevant industry and franchising experience.
• Speaking with current franchisees often provides the best insight into the quality and competence of the franchisor's leadership team.
• It is prudent to ask your attorney to confirm what long-term employment contracts are in place for key executives.

Explanation

This specific risk was not identified in the FDD Package. Item 1 indicates the franchise is founder-controlled through a series of holding companies, not owned by a private equity firm. Private equity ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the franchisees and the brand. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system.

Potential Mitigations

• Your business advisor can research the ownership structure of any franchisor to determine if it is held by a private equity firm.
• If a franchisor is PE-owned, it's wise to investigate the firm's reputation and track record with other franchise brands they have managed.
• Your attorney should review the franchise agreement for any terms that may change upon a sale of the company.

Explanation

This specific risk was not identified in the FDD Package. Item 1 provides a detailed description of the franchisor's complex corporate structure, including its U.S. parent, Amorino USA Corp., and the ultimate French parent companies. Failure to disclose parent companies can obscure the true financial backing and control of a franchise system, which is a material omission.

Potential Mitigations

• An attorney can help you understand the corporate structure disclosed in Item 1 and its implications for you.
• If a parent company guarantees the franchisor's obligations, your accountant should review the parent's financial statements if they are provided.
• It is important to understand which entity is responsible for providing support and services under the franchise agreement.

Explanation

This specific risk was not identified in the FDD Package. While Item 3 discloses one significant lawsuit filed by a franchisee against a predecessor entity with serious allegations, a single legal action does not constitute a 'pattern' of litigation. A pattern of similar lawsuits, particularly those alleging fraud or breach of contract from multiple franchisees, can be a major red flag indicating systemic problems within a franchise organization.

Potential Mitigations

• It is crucial to have your attorney carefully review the nature, frequency, and outcomes of all litigation disclosed in Item 3.
• Your attorney can conduct independent searches for litigation involving the franchisor that may not have been required to be disclosed.
• A business advisor can help you assess whether the litigation reveals potential weaknesses in the franchisor's operations or relationships.