Explanation

This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support. While Buddy's is a large system, its recent history in Item 20 shows a net decrease in total outlets, suggesting rapid growth is not a current risk. However, you should remain aware that a future shift in strategy could impact support levels.

Potential Mitigations

• Discuss the franchisor's future growth plans and how they intend to scale support infrastructure with your business advisor.
• Your attorney can help you understand the franchisor's contractual support obligations to ensure they are sufficient.
• In discussions with current franchisees, inquire about the quality and consistency of the support they currently receive.

Explanation

This specific risk was not identified. The Buddy's system and its predecessors have been in operation for many years, and its management personnel, as detailed in Item 2, appear to have significant experience in the rent-to-own industry and franchising. Therefore, the risks associated with an unproven system or inexperienced leadership do not seem applicable here. However, the recent bankruptcy and change in ownership introduce different kinds of stability risks.

Potential Mitigations

• A business advisor can still help you evaluate the management team's track record, especially in navigating the recent restructuring.
• Your attorney should review the terms of the new ownership structure to understand its potential impact on system strategy.
• Discuss with franchisees how the new ownership has affected the franchisor's operational approach and support.

Explanation

This risk appears to be low. The rent-to-own home furnishings industry is an established business sector, not a new or trendy concept. Buddy's Home Furnishings, as described in Item 1, has a long operating history, suggesting it has sustained consumer demand over various economic cycles. The business model does not appear to be based on a short-term fad.

Potential Mitigations

• Your business advisor can help you research the long-term outlook and competitive landscape of the rent-to-own industry in your local market.
• Discuss the stability and resilience of the business model through different economic climates with current, long-term franchisees.
• An accountant can help you assess the financial sustainability of this business model based on its historical performance.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key personnel of the franchisor possess extensive experience in the rent-to-own industry and in franchising. For example, the CEO and other executives have held senior roles within the company or other franchise systems for many years. This suggests the management team is familiar with the challenges of both the industry and managing a franchise network.

Potential Mitigations

• A business advisor can help you verify the backgrounds of key executives and assess their reputation within the industry.
• When speaking with franchisees, inquire about their direct experiences with the management team's competence and support.
• Your attorney can review any recent changes in management that may have occurred as a result of the bankruptcy proceedings.

Explanation

The FDD discloses the parent and affiliate structure, including the guarantor, Franchise Group Intermediate 2, LLC (FGI). The FDD includes an audited opening balance sheet for FGI, which is appropriate for a newly formed entity post-bankruptcy. The parent company provides a guaranty of the franchisor's performance. Therefore, the risk of non-disclosure of a parent or its financials does not appear to be present.

Potential Mitigations

• Your attorney should review the terms of the Parent Guaranty in Exhibit B to understand the scope and limitations of the protection it offers.
• An accountant should confirm that the provided financial statements for the guarantor meet all disclosure requirements.
• It is wise to have a business advisor help investigate the financial health of the ultimate parent, Fusion Parent, LLC, even if its financials are not provided.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses the franchisor's history, including its formation and its acquisition of the system from a predecessor, Bi-Rite Company, Inc., in 2012. The disclosure appears to provide the required information about the predecessor's identity and business. There are no obvious signs that negative historical information is being concealed in this section.

Potential Mitigations

• Your attorney should still confirm that the disclosures regarding predecessors in Items 1, 3, and 4 are complete.
• In discussions with long-term franchisees, asking about their experiences under any previous ownership can provide valuable context.
• A business advisor can help you research the history of the brand and its predecessors for any publicly available information.