Explanation

This specific risk was not identified in the FDD package. Item 20 shows a young system with no terminations, non-renewals, or other cessations. While currently positive, franchisee turnover is a critical indicator of system health. High rates can signal underlying problems with profitability, support, or the business model. For a new system like this, monitoring these numbers in future FDDs is essential to assess long-term viability and franchisee satisfaction.

Potential Mitigations

• When evaluating any franchise, your accountant should help you calculate the annual turnover rate from Item 20 data.
• Speaking with former franchisees listed in Item 20 is a crucial due diligence step a business advisor can help you prepare for.
• Your attorney can help you understand the potential reasons for franchisee turnover and what they might signify.

Explanation

This specific risk was not identified in the FDD package. While the system is growing, the rate of expansion from one to nine outlets over three years does not appear to be so rapid as to risk outstripping the franchisor's support capabilities at this time. However, this should be monitored in conjunction with the franchisor's weak financial condition, which could make scaling support difficult in the future.

Potential Mitigations

• Engaging a business advisor can help you question a franchisor about its plans to scale support infrastructure alongside unit growth.
• Your accountant should review the franchisor's financials to assess if they have the resources to support future growth.
• It is wise to ask existing franchisees about the current quality and responsiveness of the support they receive.

Explanation

This specific risk was not identified in the FDD package. Bookkeeping is a fundamental and established professional service with consistent demand from the small business community. The business model is not based on a short-term trend or novelty, suggesting a lower risk of becoming a fad.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for any franchise's products or services in your local area.
• Investigating a franchisor's plans for innovation and adaptation to market changes is a prudent step.
• Your accountant can help evaluate the business model's resilience to economic shifts and downturns.

Explanation

This specific risk was not identified in the FDD package. Item 1, which discloses the franchisor's corporate structure, provides no indication that BooXkeeping is owned or controlled by a private equity firm. The ownership appears to be held by the individuals managing the company.

Potential Mitigations

• Your attorney should always review Item 1 to identify the franchisor's ownership structure, including any parent or private equity involvement.
• If a franchisor is PE-owned, a business advisor can help you research the firm's track record with other franchise concepts.
• It's wise to ask franchisees of a PE-owned system about any changes in culture or support since the acquisition.

Explanation

This specific risk was not identified in the FDD package. Item 1 appears to properly disclose the franchisor's affiliate, BooXkeeping Corporation, and states there is no parent company. The financials for the franchisor entity are provided as required. There is no indication of a hidden parent company whose financials would be material to your decision.

Potential Mitigations

• An experienced franchise attorney can help verify the franchisor's corporate structure and determine if a parent company's financials should have been disclosed.
• If a parent company guarantee is offered, your accountant should review the parent's financial statements for stability.
• Understanding the relationship between a franchisor and its parent or affiliates is a key part of due diligence.

Explanation

This specific risk was not identified in the FDD package. Item 1 properly discloses the company's predecessor, Purple Sun Corp. A review of Items 3 and 4 shows no disclosed litigation or bankruptcy history for the predecessor or the current franchisor. There is no indication that negative historical information is being concealed.

Potential Mitigations

• Your attorney should always review Items 1, 3, and 4 to check for any disclosed history related to predecessors.
• A business advisor can assist with researching a predecessor's public track record if any concerns arise.
• When possible, asking long-term franchisees about their experience under a predecessor can provide valuable insight.

Explanation

This specific risk was not identified in the FDD package. Item 3 states, “No litigation is required to be disclosed in this Item.” This is a positive sign, indicating an absence of the type of legal disputes with franchisees, suppliers, or regulators that must be reported. However, as the franchise system is very young, this may change over time.

Potential Mitigations

• It is crucial for your attorney to review Item 3 for any disclosed litigation, paying close attention to claims of fraud or breach of contract.
• A business advisor can help you research public records for litigation that may not yet be disclosed in the FDD.
• You should ask current and former franchisees about any informal disputes or disagreements they have had with the franchisor.