Explanation

This risk was not identified in the FDD package. The franchise system is very new, with only two outlets operational at the end of 2024 and no reported terminations, non-renewals, or other cessations. High franchisee turnover is a critical red flag in established systems, often indicating issues with profitability, support, or the business model itself. A prospective franchisee should monitor these figures in future FDDs as the system grows.

Potential Mitigations

• As the system matures, it is vital to have an accountant analyze the franchisee turnover rates disclosed in future Item 20 tables.
• Speaking with a range of franchisees, especially those who have been in the system the longest, can provide valuable context beyond the numbers.
• Your attorney can help you understand the different categories of departure and what they may imply about system health.

Explanation

This risk was not identified in the FDD package. The automotive repair industry is a long-established and fundamental part of the economy, not a business based on a fleeting trend. However, any business must adapt to new technologies, such as the growing prevalence of electric and hybrid vehicles, and evolving consumer expectations. Your long-term success will depend on the franchisor's ability to keep the brand and service offerings relevant and competitive.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape of the automotive repair industry.
• It is wise to ask the franchisor about their research and development plans for adapting to industry changes like electric vehicles.
• Consulting with your attorney about the franchisor's obligations to update and evolve the system is a prudent step.

Explanation

This risk was not identified in the FDD package. The franchisor is disclosed as a subsidiary of Robert Bosch North America Corporation, which is in turn owned by Robert Bosch GmbH. This appears to be a corporate-owned structure rather than one controlled by a private equity firm. A key difference is that corporate owners may have a longer-term strategic interest in the brand, whereas private equity firms often have a shorter investment horizon focused on a profitable exit.

Potential Mitigations

• It is always valuable to have your attorney confirm the ownership structure detailed in Item 1 of the FDD.
• Discussing the long-term vision for the franchise with a business advisor can help clarify strategic goals.
• Your accountant can review the financials for any signs of debt structures or ownership interests that might behave like private equity.

Explanation

The franchisor properly discloses its parent and ultimate parent companies. Furthermore, since the franchisor is a new entity with significant operating losses and is financially dependent on its parent, the FDD includes the parent's audited financial statements to provide a complete picture of the financial backing of the system. All necessary disclosures appear to be present.

Potential Mitigations

• Your accountant should review the financial statements of both the franchisor and its parent company to fully understand the financial structure and dependencies.
• It is prudent to have your attorney review any guarantees provided by the parent company to understand their scope and limitations.
• Engaging a business advisor can help assess the operational implications of the relationship between the franchisor and its parent.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor, BAWS, has no predecessors. This means the entity has not acquired substantial assets from another company that previously offered similar franchises. Therefore, there is no hidden history of prior system failures, litigation, or high franchisee turnover under a different name that you need to be concerned about. The system's history begins with BAWS.

Potential Mitigations

• Your attorney can help confirm the franchisor's statement of having no predecessors through public records searches.
• Asking early franchisees about the history of the concept could reveal any informal lineage not rising to the level of a legal predecessor.
• A business advisor can assist in researching the background of the key executives to understand the origins of the business model.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This is positive, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag indicating systemic problems. As a new franchisor, the absence of litigation is expected but should be monitored in future FDDs.

Potential Mitigations

• It is wise to have your attorney conduct an independent search for any litigation involving the franchisor or its principals that may not have met the threshold for disclosure.
• A discussion with current franchisees about any known disputes, even if not formal litigation, can be insightful.
• A business advisor can help you assess the franchisor's general approach to conflict resolution.