Explanation

This risk was not identified in the FDD package. The data in Item 20 does not show excessively rapid growth that might strain the franchisor's support systems. A franchise system expanding too quickly can sometimes fail to provide adequate training, site selection assistance, and ongoing support to its new franchisees, potentially harming their chances of success. It's a sign of a franchisor prioritizing franchise sales over franchisee health.

Potential Mitigations

• Discussing the franchisor's growth plans and support staff-to-franchisee ratio with a business advisor is a useful step.
• Inquiring with existing franchisees about the quality and timeliness of the support they receive can provide valuable insight.
• Your accountant can review the franchisor's financial statements to assess if they have allocated sufficient resources for sustainable growth.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that Avis has been franchising since 1946, making it a very mature and established franchise system. An unproven system presents higher risks because its business model, brand recognition, and operational support structures may not be fully developed or tested in the marketplace, potentially leading to higher failure rates for franchisees.

Potential Mitigations

• For any franchise, it is wise to have your business advisor investigate the franchisor's history and the track record of its leadership.
• An accountant should always review the franchisor's financial statements for signs of stability, regardless of the system's age.
• Consulting with an attorney can help you understand the legal history and any past issues with a franchisor's predecessors.

Explanation

This risk was not identified in the FDD package. The car rental industry is a long-established, fundamental part of the travel and transportation sectors, not a business based on a short-term trend or fad. A fad-based business carries the risk that consumer interest will decline, potentially leaving you with a worthless business and ongoing contractual obligations long after the trend has passed.

Potential Mitigations

• A business advisor can help you research any industry's long-term market trends and competitive landscape.
• Evaluate a business model's resilience to economic downturns and changing consumer tastes with your financial advisor.
• Your attorney can review the franchise agreement to understand your obligations if the business becomes unviable.

Explanation

This risk was not identified in the FDD package. The executive biographies in Item 2 show a management team with extensive, long-term experience at Avis and within the car rental industry. Inexperienced management can be a significant risk, as they may lack the expertise to provide effective support, manage the brand, or navigate industry challenges, which could negatively impact your business's performance and the value of your investment.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the key executives of any franchise system.
• Speaking with current franchisees can provide direct insight into their confidence in the management team's leadership and support.
• Your attorney can review Item 3 for any litigation involving the actions of management that might indicate problems.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that the ultimate parent company, Avis Budget Group, Inc., is a publicly traded corporation on the NASDAQ stock market, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives, which may not always align with the long-term health of the franchise system and its franchisees.

Potential Mitigations

• Your business advisor can help you research the ownership structure of any franchisor.
• An accountant can analyze the franchisor's financial statements for signs of aggressive cost-cutting or debt-loading that can sometimes be associated with certain ownership structures.
• Inquire with current franchisees about any significant changes in franchisor strategy or support levels.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the multi-layered parent company structure, and Item 21 provides the audited financial statements for the ultimate parent and guarantor, Avis Budget Group, Inc. A failure to disclose a parent company or provide its financials when required can obscure the true financial backing and stability of the franchisor, hiding significant risks from a prospective franchisee.

Potential Mitigations

• An attorney should always confirm that the disclosed entity is the correct franchisor and that all parent companies and guarantors are properly identified.
• If a parent company guarantee is provided, it is important for your attorney to review its terms and enforceability.
• Your accountant should verify that the provided financial statements are for the correct entity and meet all disclosure requirements.

Explanation

This risk was not identified in the FDD package. The FDD's Item 1 contains a detailed history of the franchisor and its predecessors, including Cendant and HFS. The document does not appear to hide this history. Concealing or minimizing a negative history involving predecessors can prevent you from understanding inherited systemic problems, a pattern of litigation, or high franchisee failure rates that could affect your investment.

Potential Mitigations

• A franchise attorney can help you interpret the predecessor history disclosed in Items 1, 3, and 4.
• Your business advisor can assist with independent research into a franchisor's corporate history and past brand names.
• Asking long-term franchisees about their experience under any prior ownership can reveal valuable historical context.