Explanation

This risk was not identified in the FDD package. Item 20 shows that there are no existing or former franchisees, so there is no turnover data to analyze. High franchisee turnover is generally a significant red flag in a franchise system, as it can indicate systemic problems such as a lack of profitability, poor franchisor support, or an unsustainable business model. The absence of this data is due to the system being new to franchising.

Potential Mitigations

• A business advisor can help you research typical turnover rates for similar industries to establish a benchmark for future evaluation.
• Once the system has franchisees, it's crucial to consult with your attorney to understand how to monitor Item 20 data in future FDDs.
• Your accountant can help you model different scenarios to understand the financial impact if the business does not meet projections.

Explanation

This specific risk was not identified. As a new franchisor with zero outlets, there is no history of rapid franchise growth. Uncontrolled growth can strain a franchisor's resources, potentially leading to inadequate support for franchisees. While the affiliate company has opened five locations over approximately two and a half years, this rate of corporate growth is not considered excessively rapid or indicative of a risk to the franchise support system at this time.

Potential Mitigations

• Your business advisor should help you monitor the franchisor's growth rate against its expansion of support staff and infrastructure if you invest.
• Engaging a franchise attorney to review future FDDs can help assess whether the franchisor's support capabilities are keeping pace with system growth.
• Discussing the quality and timeliness of support with a diverse group of franchisees in the future will provide valuable insight.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is owned by its individual managing members, not a private equity firm. Private equity ownership can sometimes introduce risks related to a focus on short-term returns over the long-term health of the franchise system, potentially leading to increased fees, reduced support, or a quick resale of the brand. This does not appear to be a concern here.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor and identify any undisclosed controlling entities.
• A business advisor can explain the different risks associated with various franchisor ownership structures, such as PE firms versus founder-led companies.
• Understanding the franchisor's long-term vision and capital structure is a key piece of due diligence your accountant can assist with.

Explanation

This risk was not found in the documents. Item 1 clearly states that AutismCOE has no parent entities. It does disclose its affiliates and the franchisor's own financial statement is provided. Therefore, there is no risk of a hidden parent company or lack of financial transparency regarding the ultimate ownership structure. The disclosed financials are for the franchising entity itself.

Potential Mitigations

• It's a good practice to have your attorney confirm the corporate structure and identify all relevant entities involved in the franchise system.
• Your accountant should always review the financial statements of the specific entity that is signing the franchise agreement.
• A business advisor can help you understand the roles and relationships between a franchisor and its disclosed affiliates.

Explanation

This risk was not identified. The FDD clearly states in Item 1 that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired a major portion of its assets. The absence of a predecessor means there is no hidden history of past business failures, litigation, or franchisee issues that could be obscured from your view.

Potential Mitigations

• Your attorney should always verify the franchisor's corporate history as disclosed in Item 1.
• A business advisor can explain how a franchisor's acquisition of a predecessor's assets can sometimes carry forward prior systemic issues.
• Independent online research can sometimes uncover historical information about a brand's origins, which your business advisor can help you interpret.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. The California addendum also includes a standard disclosure stating that neither the franchisor nor its brokers are subject to any disciplinary orders. The absence of litigation against the franchisor, especially claims of fraud or breach of contract from other franchisees, is a positive indicator, although it is expected for a brand new franchisor.

Potential Mitigations

• Your attorney should still consider conducting public record searches to confirm the absence of litigation.
• Engaging a business advisor to teach you how to monitor future FDDs for any new litigation is a prudent step.
• Understanding the typical types of disputes in franchising can provide context for any future litigation that may arise; your attorney can provide this education.