Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a significant contraction of the franchise system in the most recent year, not rapid growth. A franchisor expanding too quickly can strain resources, leading to inadequate support for franchisees. It is often a sign that a franchisor is prioritizing franchise fee revenue over building a sustainable, well-supported system. You should always assess if a franchisor's support infrastructure is keeping pace with its growth.

Potential Mitigations

• Engaging a business advisor can help you analyze the franchisor's growth rate in Item 20 relative to its support staff disclosed in Item 2.
• You can ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• An accountant should review the franchisor's financials to determine if they are reinvesting in support systems to sustain growth.

Explanation

This risk was not identified. ATC Healthcare Services, LLC (ATC LLC) indicates in Item 1 that it has been offering franchises since 1996, demonstrating a long operational history. Investing in a new or unproven system carries higher risk because the business model, brand recognition, and franchisor's ability to provide support have not yet been fully tested in the marketplace. Such systems may have a higher failure rate and less-developed operational manuals and procedures.

Potential Mitigations

• Your attorney should verify the franchisor's operating history and experience as stated in Item 1 and Item 2.
• When evaluating any franchise, especially a newer one, it is important to speak with the initial franchisees to learn about their experiences.
• A business advisor can help you assess whether a new system has adequate capitalization and experienced management to succeed.

Explanation

This risk does not appear to be present. The franchised business provides temporary and permanent medical professional staffing, which is an established and essential sector of the healthcare industry. A fad business is one tied to a short-lived trend, which can be a significant risk. Once public interest wanes, demand for the product or service can disappear, potentially leaving you with a failed business and ongoing contractual obligations to the franchisor.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for any franchise's products or services.
• You should evaluate a franchisor's plans for innovation and adaptation to changing market trends, often found in Item 11.
• Your financial advisor can assist in analyzing the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. The executive team detailed in Item 2 appears to have significant and long-term experience in both the staffing industry and in managing this specific franchise system. Inexperienced management can be a major risk, as they may lack the expertise to provide effective training, support, and strategic direction. This can lead to operational inefficiencies and a higher risk of failure for franchisees who rely on their guidance.

Potential Mitigations

• Your attorney should always review the backgrounds of the key executives listed in Item 2 of the FDD.
• It is beneficial to ask existing franchisees about their direct experiences with the franchisor's management team and the quality of support provided.
• A business advisor can help you assess whether the management team's skills align with the specific needs of the industry.

Explanation

This risk was not identified. Item 1 indicates the franchise is part of a publicly-traded company, ATC Healthcare, Inc., not one owned by a private equity firm. Private equity ownership can introduce risks, as their typical goal is to increase a company's value for a sale within a few years. This can sometimes lead to decisions that favor short-term profits, like cutting franchisee support or increasing fees, over the long-term health of the brand.

Potential Mitigations

• Your attorney should always clarify the ownership structure of the franchisor as disclosed in Item 1.
• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's history with other franchise brands.
• It is prudent to ask franchisees about any changes in operations or support since a private equity acquisition.

Explanation

This risk was not identified. The FDD clearly discloses in Item 1 that the franchisor, ATC Healthcare Services, LLC, is a subsidiary of ATC Healthcare, Inc. Furthermore, the parent company's audited financial statements are provided in Item 21 and a Guarantee of Performance is included as Exhibit D-1. Failure to disclose a parent company, or provide its financials when it guarantees performance, is a significant red flag that could hide financial instability or other risks.

Potential Mitigations

• Your attorney should always verify the corporate structure and ensure any parent company that guarantees performance provides its financial statements.
• An accountant should review any provided parent company financials with the same diligence as the franchisor's own statements.
• Always confirm that any guarantee of performance from a parent entity is a formal, legally binding document reviewed by your attorney.

Explanation

This risk was not identified in the FDD. The document does not disclose any predecessors in a way that suggests a negative history. When a franchisor acquires a brand from a predecessor, there is a risk that the FDD may not fully disclose the predecessor's historical problems, such as high failure rates or litigation. This can obscure the true track record of the franchise system you are buying into.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and related disclosures in Items 3 and 4.
• A business advisor can help you research the history of the brand, especially if it was recently acquired by the current franchisor.
• Asking long-tenured franchisees about their experience under any previous ownership is a valuable part of due diligence.

Explanation

This risk was not identified in the FDD. Item 3, which requires the disclosure of material litigation, states that no litigation must be disclosed. A pattern of lawsuits filed by franchisees against a franchisor alleging fraud or misrepresentation is a serious warning sign of systemic problems. Likewise, a high number of lawsuits filed by the franchisor against its franchisees can indicate an unusually aggressive or difficult relationship.

Potential Mitigations

• A thorough review of Item 3 with your franchise attorney is a critical step in assessing any franchise opportunity.
• Your attorney can help you understand the nature and potential implications of any disclosed litigation.
• It is wise to speak with franchisees involved in past or pending litigation to hear their perspective.