Explanation

This risk was not identified in the FDD package. The franchise system is very new, with only one franchised outlet open as of the end of 2024. Therefore, there is insufficient data to establish a pattern of high franchisee turnover. Assessing turnover rates is crucial for established systems as it can indicate franchisee dissatisfaction or systemic problems.

Potential Mitigations

• Your business advisor should help you monitor the franchise system’s growth and turnover rates in future FDDs.
• It is important to maintain open communication with other franchisees as the system grows to stay informed about their experiences.
• Before investing, your attorney can help you understand the termination and non-renewal clauses that could contribute to future turnover.

Explanation

The business operates in the body sculpting and wellness industry, which can be influenced by evolving beauty trends and technologies. While the general market for aesthetic services is established, specific treatments or machines can rise and fall in popularity. The long-term consumer demand for the specific methods and equipment used by Bodenvy is not guaranteed, presenting a potential risk if the market shifts away from these specific trends.

Potential Mitigations

• A business advisor can help you research the long-term viability and consumer demand for the specific services and technologies offered.
• It is important to question the franchisor about their research and development plans to adapt to changing market trends.
• Discuss with your financial advisor how a shift in consumer trends could impact your long-term return on investment.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. Private equity ownership can be a risk if the firm prioritizes short-term returns over the long-term health of the franchise system, potentially leading to reduced support or increased fees.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor through public records.
• A business advisor can help research the backgrounds of the principal owners to understand their business philosophy.
• It is wise to ask the franchisor about their long-term vision for the company and any plans for future sale or ownership changes.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that Bod Brands does not have any parent entities. In some franchise systems, a thinly capitalized franchisor may be a subsidiary of a larger, undisclosed parent company. The failure to disclose such a parent and its financial information can obscure a complete picture of the franchise system's financial backing and stability.

Potential Mitigations

• Your attorney can help confirm the franchisor’s corporate structure and identify any parent or holding companies.
• An accountant should always review the provided financial statements to assess the franchisor’s standalone financial health.
• You should discuss the ownership and capital structure with your financial advisor to understand who backs the company.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the business concept. When a predecessor exists, it is important to review their history for any issues, such as litigation or high franchisee turnover, as these could reflect on the health of the system you are buying into.

Potential Mitigations

• Your attorney should verify the franchisor's statement regarding the absence of any predecessors.
• A business advisor can help you research the history of the brand and its founders to uncover any prior business ventures.
• It is prudent to ask early franchisees about the history of the business concept as they understand it.

Explanation

This risk was not identified in the FDD package. Item 3 discloses that there is no litigation history that requires disclosure. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, or a high volume of suits initiated by the franchisor against franchisees, can be a significant red flag about the health and integrity of a franchise system.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor or its principals that may not have met the threshold for disclosure.
• A best practice is to ask current and former franchisees about their experiences and whether they are aware of any disputes within the system.
• A business advisor can help you assess the overall health of franchisee-franchisor relations.