Explanation

This risk was not identified in the FDD Package. Item 20 data shows a stable franchised system of 26 units with only one termination and two transfers over the past three years. Low turnover can be an indicator of franchisee satisfaction and a healthy system. It is still important to understand the reasons for any departures.

Potential Mitigations

• Speaking with former franchisees listed in Item 20 is a valuable due diligence step your business advisor can help you prepare for.
• Your attorney can help you formulate questions for the franchisor regarding the circumstances of any past terminations or transfers.
• An accountant can assist you in analyzing the Item 20 data for any subtle trends over the three-year period.

Explanation

This risk was not identified in the FDD Package. The franchise system has been operating since 2008 and has maintained a relatively stable number of franchised and affiliate-owned outlets. Rapid, unsupported growth can strain a franchisor's ability to provide adequate training and support, but that does not appear to be the case here.

Potential Mitigations

• Your business advisor can help you assess whether the franchisor's current support infrastructure, as described in Item 11, seems adequate for the system's size.
• Asking current franchisees about the quality and timeliness of franchisor support is a prudent step.
• It is wise to have your accountant review the franchisor's financial statements in Item 21 to confirm they have the resources to support the existing system.

Explanation

This risk was not identified in the FDD Package. The franchisor, Apex Franchise Holdings, LLC (AFH), was formed in 2007 and began franchising in 2008. Key executives have been with the company or its affiliate since 2003, indicating significant experience in the physical therapy industry. The system is established, not new or unproven.

Potential Mitigations

• A review of the management team's experience in Item 2 with your business advisor can confirm their qualifications in franchising and the industry.
• You should discuss the system's history and evolution with long-tenured franchisees from the list in Item 20.
• Your attorney can verify the franchisor's corporate history as disclosed in Item 1.

Explanation

This risk was not identified in the FDD Package. The business, physical therapy, is a well-established and necessary component of the healthcare industry. While subject to market changes and competition, it is not based on a short-term trend or fad. Sustainable businesses typically rely on consistent consumer demand rather than novelty.

Potential Mitigations

• Engaging a business advisor to research the long-term outlook for the physical therapy industry in your specific market is recommended.
• You should discuss the system's adaptability to new techniques and technologies with the franchisor and current franchisees.
• An analysis with your accountant of how the business model might weather economic shifts can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the key executives of the franchisor have extensive experience, with careers connected to the company or its main affiliate, Apex Physical Therapy, L.L.C., dating back to 2003. This indicates a management team with a long history in the physical therapy industry.

Potential Mitigations

• Your business advisor can help you review the biographies in Item 2 to fully appreciate the management team's background.
• Posing questions to the franchisor about their team's specific experience in supporting franchisees is a wise step.
• You might discuss management's reputation and effectiveness with current franchisees.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that the franchisor is owned by a private equity firm. This type of ownership can sometimes lead to decisions focused on short-term investor returns rather than the long-term health of the franchise system, but it does not appear to be a factor here.

Potential Mitigations

• Your attorney can help you confirm the ownership structure of the franchisor as disclosed in Item 1.
• It is always a good practice to ask the franchisor about any potential plans for a future sale of the company.
• Engaging a business advisor to research the franchisor's ownership history can provide additional context.

Explanation

This risk was not identified in the FDD Package. The FDD discloses parent and affiliate companies in Item 1 and provides the necessary financial statements in Item 21 as required. Full transparency about the entire corporate structure, including parent companies, is crucial for you to accurately assess the overall financial health and stability of the system you are joining.

Potential Mitigations

• A thorough review of the corporate structure disclosed in Item 1 with your attorney is important to understand the relationships between entities.
• Your accountant should analyze the financial statements of all disclosed entities to get a complete picture of the system's financial health.
• Asking the franchisor to explain the roles and responsibilities of each affiliate company can provide valuable clarity.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor has no predecessor. When a franchisor acquires a business from a predecessor, it is important to review the predecessor's history for any potential issues, such as litigation or high franchisee failure rates, that could carry over to the new entity.

Potential Mitigations

• Your attorney can confirm the franchisor's corporate history as stated in Item 1.
• It is still prudent to ask long-tenured franchisees about the history of the company and any significant past changes.
• A business advisor can help you research the brand's history in the marketplace.

Explanation

This risk was not identified in the FDD Package. Item 3 states there is no litigation that must be disclosed. A clean litigation history can be a positive indicator, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, could suggest systemic problems within the franchise.

Potential Mitigations

• Your attorney can conduct an independent public records search to confirm the absence of litigation.
• Discussing any past or pending legal issues with current and former franchisees is a vital part of due diligence.
• Understanding the dispute resolution process in Item 17 is important in case a future conflict arises; your attorney can explain this.