Explanation

Item 20 data for 2024 shows one franchise termination and one transfer out of a starting base of 25 franchised units. While any closure is a concern, this rate does not, by itself, indicate a systemic problem of high turnover, especially within the context of the system's rapid growth during the same period. Careful monitoring of future trends would be prudent.

Potential Mitigations

• It is highly recommended to contact the former franchisee listed in Exhibit E to understand the reasons for their departure.
• Discussing the circumstances of the termination with the franchisor can provide additional context; your attorney can help frame the questions.
• Your business advisor can help you calculate the annual turnover rate and compare it against any available industry benchmarks.

Explanation

This specific risk was not identified in the FDD Package. The business model, centered on Pilates fitness studios, is part of a well-established segment of the wellness industry rather than a new or fleeting trend. However, any business faces risks from changing consumer preferences. A strong brand must be able to evolve its offerings to maintain relevance and long-term demand in a competitive marketplace.

Potential Mitigations

• Engaging a business advisor to research the long-term market trends for boutique fitness and Pilates in your specific local area is a prudent step.
• Investigate the brand's history of innovation and plans for future service development to gauge its adaptability.
• Consider how the business might be impacted by economic downturns and shifts in consumer spending habits with your financial advisor.

Explanation

This specific risk was not identified in the FDD Package. Item 2 provides biographies of the management team, indicating they possess experience in the fitness industry and in operating company-owned or franchised outlets. However, managing a large, rapidly growing franchise system requires a different skill set than operating a few locations. The ability to effectively scale support is a key factor for your success.

Potential Mitigations

• Assessing the depth of the management team's experience specifically in supporting a franchise network of this size is a valuable discussion to have with a business advisor.
• Asking current franchisees about their direct experiences with the management team's support and strategic direction can provide valuable insight.
• Your attorney can help you research the professional backgrounds of the key executives listed in Item 2.

Explanation

This specific risk was not identified in the FDD Package. Item 1 and Item 2 indicate the franchisor is founder-led and do not disclose ownership by a private equity firm. This can be positive, as founder-led companies may prioritize the long-term health of the brand. However, you should be aware that the franchise agreement allows the franchisor to sell the entire system to any buyer, including a private equity firm, without your consent.

Potential Mitigations

• Having your attorney review the assignment clauses in the franchise agreement is important to understand what happens if the company is sold.
• In discussions with the franchisor, you might inquire about their long-term vision for the company's ownership structure.
• A business advisor can help you understand the typical operational changes that can occur under different ownership structures.

Explanation

This specific risk was not identified in the FDD Package. The documents disclose an affiliate, BODYBAR Franchise IP Holding LLC, which owns the intellectual property. The primary entity, BODYBAR Franchising, LLC, provides audited financial statements. The relationship between the entities appears to be disclosed. It is crucial, however, that the entity you contract with is the one with the financial and operational ability to support you.

Potential Mitigations

• Your attorney should verify the roles of all affiliated entities and ensure that the franchisor entity you are contracting with holds the necessary rights and assets.
• An accountant can help you analyze any financial interdependencies between the franchisor and its affiliates that might affect you.
• Clarifying which entity is responsible for which support obligations is a key task for your attorney.

Explanation

This specific risk was not identified in the FDD Package. Item 1 does not disclose any predecessors to the current franchisor entity. This suggests the brand and system were developed within the current company structure. Therefore, the operating history, litigation, and bankruptcy information presented in the FDD should represent the complete history of the franchise system under its current leadership.

Potential Mitigations

• It is still prudent to ask the franchisor about the history of the brand to confirm there are no unmentioned predecessor entities.
• Your attorney can conduct a public records search to verify the corporate history of the franchisor entity.
• A discussion with a business advisor can help you understand the importance of a company's lineage and past performance.

Explanation

This specific risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. This is a positive indicator, suggesting the franchisor does not have a history of significant legal disputes with its franchisees, suppliers, or regulators. A clean litigation history can reflect a healthier franchisor-franchisee relationship and a more stable operating environment.

Potential Mitigations

• Your attorney can still perform an independent search of court records to verify the absence of litigation.
• Discussing the franchisor's dispute resolution philosophy with current franchisees can offer insight into how disagreements are handled.
• Understanding the internal dispute resolution process outlined in the franchise agreement is still important, which your attorney can explain.