Explanation

This risk was not identified in the FDD Package. While the number of company-owned outlets has grown, the franchise system itself is mature and has seen a decline in units, not rapid growth. Evaluating a franchisor's ability to support its growth is critical, as overexpansion can strain resources for training, site selection, and ongoing assistance, potentially harming franchisee success. A measured growth strategy is often a sign of a healthy, sustainable franchise system.

Potential Mitigations

• A business advisor can help you analyze the system's growth rate in Item 20 in conjunction with the franchisor's financials in Item 21 to assess sustainability.
• Inquiring with existing franchisees about the quality and timeliness of franchisor support can provide insight into whether resources are strained.
• Your attorney should review the franchisor's contractual support obligations described in Item 11.

Explanation

This risk was not identified in the FDD Package. Budget Rent A Car System, Inc. (Budget) and its predecessors have been in the vehicle rental and franchising business for many decades, representing a mature and established brand. An unproven system carries higher risks, as it may lack refined operational procedures, established brand recognition, and a track record of providing effective franchisee support, making franchisee success more uncertain.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the franchisor's history and the maturity of its operating systems.
• Consulting with an attorney is important to understand the specific obligations of a newer franchisor.
• An accountant can review the financial stability of a less-established franchisor to ensure it has adequate capital.

Explanation

This risk was not identified in the FDD Package. The car rental industry is a long-established and fundamental part of the travel and transportation sector, not a business based on a short-term trend. Investing in a fad business is risky because customer demand may disappear, leaving you with a long-term contractual obligation to pay fees for a concept that is no longer viable or profitable.

Potential Mitigations

• Your business advisor can help you research the long-term market demand and competitive landscape for any industry you consider entering.
• An attorney should review the franchise agreement's term length and your obligations to ensure you understand the commitment.
• Working with an accountant can help you model the financial risks associated with a business concept that has a potentially limited lifespan.

Explanation

This risk was not identified in the FDD Package. The executive team disclosed in Item 2, including the President and CEO and the CFO, have extensive, long-term careers within Avis Budget Group, Inc. (ABG) and its subsidiaries. This indicates a deep level of experience in the car rental industry and with the specific business systems. Inexperienced management can be a significant liability, potentially leading to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Interviewing existing franchisees provides valuable firsthand insight into the competence and effectiveness of the franchisor's management team.
• An attorney can help you understand the contractual obligations of the management team to provide support and assistance.

Explanation

This risk was not identified in the FDD Package. The franchisor, Budget, and its parent, Avis Budget Group, Inc. (ABG), are a publicly-traded company (NASDAQ: CAR), not a private equity-owned firm. Private equity ownership can introduce risks related to short-term profit motives, which may not align with the long-term health of franchisees. This can sometimes lead to increased fees, reduced support, or a quick resale of the franchise system.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor to understand its strategic priorities.
• Reviewing a company's public filings, with the help of an accountant, can provide insight into its financial health and operational focus.
• Your attorney should review any clauses in the franchise agreement related to the sale or transfer of the franchise system.

Explanation

This risk was not identified in the FDD Package. The FDD clearly identifies Budget Rent A Car System, Inc. as a subsidiary of Avis Budget Car Rental, LLC, which is a subsidiary of the ultimate parent, Avis Budget Group, Inc. (ABG). Crucially, the audited financial statements and a performance guarantee from the parent, ABG, are provided in Exhibit G. This provides financial transparency into the entity that ultimately backstops the franchisor's obligations.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 and ensure any required parent company financials are included in Item 21.
• An accountant should be tasked with reviewing any provided parent company financial statements.
• It is important for your attorney to confirm the enforceability of any performance guarantee offered by a parent company.

Explanation

This risk was not identified in the FDD Package. Budget discloses that its direct predecessor was Budget Rent A Car Corporation, which it acquired in 2002. The FDD also notes a long history of franchising through various predecessors since 1960. The litigation and bankruptcy history in Items 3 and 4 includes information related to predecessors. Inadequate disclosure of a predecessor's history could obscure past issues that might still affect the brand or system.

Potential Mitigations

• A franchise attorney should always review the predecessor history in Item 1 and cross-reference it with the litigation and bankruptcy disclosures in Items 3 and 4.
• Asking long-tenured franchisees about their experiences under previous ownership can provide valuable context.
• Your business advisor can help you research the history of the brand and its prior owners.