Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support. If a franchisor expands faster than their support infrastructure can handle, the quality of training, operational assistance, and site selection guidance can decline, potentially harming new and existing franchisees. While the system grew in 2022-2023, it experienced a net decline in 2024, so this specific risk is not currently present.

Potential Mitigations

• A business advisor can help you assess a franchisor's plans for scaling its support systems in parallel with unit growth.
• Inquiring with both new and established franchisees provides insight into the consistency and quality of franchisor support.
• An accountant's review of the franchisor's financial statements can help determine if they have the capital to support planned expansion.

Explanation

This risk was not identified in the FDD package. A fad business is one tied to a short-lived trend, creating a risk of failure when consumer interest fades. The tax preparation industry is a long-established, necessary service. While business models and technology evolve, the core demand for tax services is not considered a fad, which reduces this particular risk.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for any franchise's products or services.
• Evaluating a franchisor's plans for innovation and adaptation to market changes is a key part of due diligence.
• Consider the business model's resilience to economic shifts and changing consumer behavior with your financial advisor.

Explanation

This risk was not identified in the FDD package. The franchisor's parent company, Loyalty, LLC, appears to be a holding company for various franchise brands and is led by an experienced individual in franchising. However, it is not explicitly identified as a private equity firm with a typical short-term hold and exit strategy. The risk of decisions being driven by short-term investor returns over system health is a general business consideration but not a specifically identified private equity risk here.

Potential Mitigations

• It is always prudent to research the ownership structure of a franchisor with your business advisor.
• Speaking with franchisees can reveal if there have been negative changes in system direction or support following an ownership change.
• Your attorney can analyze the Franchise Agreement for clauses related to the sale or assignment of the franchise system.

Explanation

This risk was not identified in the FDD package. The franchisor properly discloses its parent company, Loyalty, LLC, in Item 1. While the parent company's financial statements are not provided, the franchisor itself provides its own audited financial statements in Item 21 and Exhibit F. There is no indication that a parent company guarantee is being used to bypass disclosure of weak franchisor financials, so this specific risk is not present.

Potential Mitigations

• Your attorney should verify if a parent company's financial statements are required by law, for instance, if the franchisor is newly formed or relying on a parent guarantee.
• If a parent guarantee is offered, an accountant should review the parent's financials to assess its ability to back the guarantee.
• Understanding the complete corporate structure is a key step in due diligence that your business advisor can help with.

Explanation

This risk was not identified in the FDD package. The franchisor discloses its predecessors in Item 1 and provides information on their history. The FDD also includes extensive litigation history in Item 3 related to key personnel from their time at predecessor entities or other companies, and Item 4 confirms no bankruptcy history. While the content of these disclosures is concerning, the franchisor appears to have made the required disclosures rather than hiding predecessor history.

Potential Mitigations

• Your attorney should carefully review all information about predecessors to understand the system's lineage.
• Independent research on a predecessor's track record can sometimes uncover additional context; a business advisor can help guide this process.
• Questioning long-term franchisees about their experience under any previous ownership is a valuable due diligence step.