Explanation

This risk was not identified, as Item 20 data indicates the franchise system has been shrinking, not growing rapidly, over the past three years. Rapid growth can strain a franchisor's ability to provide support, but the opposite trend here presents a different set of concerns about system health and franchisee success.

Potential Mitigations

• Discuss with a business advisor the potential reasons for system shrinkage and its implications for brand value and support.
• Your accountant should review the franchisor's financial statements to see if the shrinkage is correlated with financial distress.
• When speaking with current franchisees, ask your attorney to help you inquire about their perception of the brand's momentum and future prospects.

Explanation

This risk was not identified in the FDD package. The business model, focused on supplemental education for K-12 students including test preparation, operates in a well-established and enduring market sector rather than being based on a new or fleeting trend.

Potential Mitigations

• Engage a business advisor to research the local competitive landscape for supplemental education to gauge market saturation.
• Your accountant can help you develop financial projections based on realistic enrollment figures for your specific area.
• Discussing long-term educational trends and the franchisor's curriculum development plans with your business advisor can provide valuable insight.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive and long-term experience, spanning over a decade, in the supplemental education industry and with the Best in Class brand and its predecessor. This experience is a positive factor for system leadership.

Potential Mitigations

• When speaking with current franchisees, a business advisor can help you formulate questions about their perception of management's competence and strategic vision.
• Your attorney can help you understand the roles and responsibilities of the management team as outlined in the franchise agreement.
• An accountant's review of the financial statements can provide context on management's financial stewardship of the company.

Explanation

This risk was not identified. Item 1 and other disclosures do not indicate that the franchisor is owned or controlled by a private equity firm. The risks associated with short-term investor return objectives over long-term system health do not appear to be present here.

Potential Mitigations

• It is always prudent to have your attorney confirm the ownership structure of the franchisor entity.
• A business advisor can help you research the background of the principal owners to understand their long-term goals for the franchise.
• During due diligence calls, asking current franchisees about any recent changes in ownership or strategic direction is a good practice.

Explanation

This risk was not identified. The FDD explicitly states in Item 1 that the franchisor does not have a parent company. The relationship with the predecessor and key affiliate (LBIS, LLC) appears to be disclosed, along with the required financial statements for the franchisor entity itself.

Potential Mitigations

• Your attorney can help you understand the legal and operational relationship between the franchisor and its disclosed affiliate, LBIS, LLC.
• An accountant should review the financial statements and footnotes for details about transactions between the franchisor and its affiliates.
• A business advisor can help you assess any potential risks stemming from the franchisor's reliance on its affiliate for key services.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. This absence of reported legal disputes with franchisees is generally a positive indicator, though it does not eliminate the need for thorough due diligence on franchisee satisfaction.

Potential Mitigations

• Your attorney can conduct independent public record searches to verify the absence of significant litigation.
• Even without disclosed litigation, asking current and former franchisees about their experiences and any disputes is a key part of due diligence.
• A business advisor can help you understand the typical level of disputes within the franchising industry for comparison.