Explanation

This risk was not identified in the FDD Package. Rapid growth can strain a franchisor's ability to provide adequate support to all franchisees. It is important to assess whether a franchisor's support infrastructure, such as training staff and field support personnel, is keeping pace with its unit growth to ensure new and existing franchisees receive the assistance they need to operate successfully.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor's growth rate in Item 20 against its available resources and support staff.
• Speaking with a mix of new and established franchisees can provide insight into whether the quality of support has changed over time.
• An accountant's review of the franchisor's financials can help determine if they are investing sufficiently in support infrastructure to match growth.

Explanation

This risk was not identified in the FDD Package. Auto-Lab's predecessors began franchising in 1989, and the current company has been franchising since 2012. An unproven system carries higher risks, as its business model, brand recognition, and support structures are not yet well-established. Prospective franchisees should be cautious and conduct extensive due diligence on the concept's long-term viability and the management team's experience.

Potential Mitigations

• A business advisor can help you thoroughly investigate the track record of any new franchise system and its management team.
• Engaging an attorney to negotiate for more favorable terms, such as lower fees or enhanced support commitments, may be possible given the higher risk.
• Speaking with the very first franchisees of a new system is critical to understanding the early challenges and the quality of franchisor support.

Explanation

This risk was not identified in the FDD Package. The automotive service industry is mature and established. However, investing in a business based on a temporary trend can be risky. Once consumer interest fades, the business may no longer be viable, but your contractual obligations to pay fees to the franchisor would continue. It is important to assess the long-term, sustained market demand for the product or service being offered.

Potential Mitigations

• Your business advisor can help you research the industry to determine if there is long-term, sustainable demand for the offered services.
• Assessing the franchisor's plans for innovation and adaptation to market changes is a prudent step to take with your business advisor.
• Consider how the business might perform during different economic cycles with your financial advisor.

Explanation

This risk was not identified in the FDD Package. The key executives appear to have significant experience both in the automotive industry and with the Auto-Lab system specifically. A lack of relevant management experience can be a major red flag, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support. You should always review the backgrounds of the key management team in Item 2.

Potential Mitigations

• A thorough review of the executive team's biographies in Item 2 with a business advisor is a critical due diligence step.
• When speaking with existing franchisees, it's wise to ask about their direct experiences with the management team's competence and support.
• Investigating the management's prior track record with other franchise systems, if any, can provide valuable insights.

Explanation

This risk was not identified in the FDD Package. Auto-Lab does not appear to be owned by a private equity firm. When a franchisor is PE-owned, there can be a risk that decisions are focused on short-term financial returns for investors rather than the long-term health of the franchise system and the profitability of individual franchisees. This can sometimes lead to increased fees, reduced support, or pressure to use affiliated vendors.

Potential Mitigations

• A business advisor can help you research the track record of any private equity firm that owns a franchise system you are considering.
• Speaking with franchisees about any changes in culture, fees, or support since a PE acquisition can offer valuable firsthand accounts.
• Your attorney should carefully review the franchisor's right to sell or assign the franchise agreement, as this is a common exit strategy for PE firms.

Explanation

This risk was not identified in the FDD Package. Auto-Lab discloses its parent company, Wilson Holdings, L.L.C. When a franchisor is a subsidiary, it is important for prospective franchisees to have a clear picture of the parent company's financial health and influence, as this can affect the stability and support of the entire system. A failure to disclose a parent or provide its financials when required can obscure significant risks.

Potential Mitigations

• If a franchisor is a subsidiary, your accountant should assess whether the parent company's financial statements are provided or required for a full risk analysis.
• Your attorney should investigate any guarantees provided by the parent company and their enforceability.
• Consulting a business advisor to understand the relationship and power dynamics between a franchisor and its parent is a wise precaution.

Explanation

This risk was not identified in the FDD Package. Auto-Lab discloses that its predecessors have sold franchises since 1989. In cases where a franchisor has acquired a system from a predecessor, it's vital to scrutinize the predecessor's history for issues like litigation, bankruptcy, or high franchisee failure rates, as these can be inherited by the new ownership. Incomplete disclosure can hide systemic problems.

Potential Mitigations

• It is important for your attorney to carefully review all disclosures related to predecessors in Items 1, 3, and 4.
• Independent research into a predecessor's history, with the help of a business advisor, can reveal past issues not prominent in the FDD.
• Speaking with long-term franchisees who operated under the predecessor can provide invaluable historical context.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses one past legal action involving a franchisee that filed for bankruptcy, where the franchisor successfully defended its contractual rights. A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a major red flag indicating systemic problems with the franchisor's business practices. You should always review Item 3 carefully for any such patterns.

Potential Mitigations

• Your attorney should always be consulted to analyze the details, allegations, and outcomes of any litigation disclosed in Item 3.
• A business advisor can help you understand if the number and type of lawsuits are unusual for a franchise system of its size and age.
• It is wise to ask the franchisor for their perspective on any disclosed litigation and discuss it with current franchisees.