Explanation

This risk was not identified in the FDD package. The franchisor, Kline Franchising, Inc. ("Kline Franchising"), began franchising in 2015 and has a substantial number of operating units. An unproven system can be risky because the business model, brand recognition, and franchisee support infrastructure may be underdeveloped, leading to a higher potential for failure.

Potential Mitigations

• When evaluating any franchise, it is wise to have a business advisor assess the franchisor's operating history and the maturity of its systems.
• An accountant can analyze the financial statements of a young franchisor to determine if it is sufficiently capitalized for long-term survival.
• Your attorney should review the FDD for any state-required bonds or escrow of initial fees, which can be mandated for new systems.

Explanation

The business operates in the competitive fitness industry, which is subject to changing trends. However, the franchisor has been in business since 2012 and franchising since 2015, indicating a degree of staying power beyond a short-term fad. While any fitness concept carries some trend-related risk, this specific business model has demonstrated a level of market longevity, making this a low-severity risk.

Potential Mitigations

• A business advisor can help you research the long-term sustainability of the boot camp fitness model in your specific local market.
• Evaluate the franchisor's commitment to innovation and evolving its programs to stay relevant by reviewing Item 11.
• Engaging a financial advisor to create conservative financial projections can help account for potential shifts in consumer demand.

Explanation

This risk was not identified. FDD Item 2 shows that the key executives have extensive experience within the Burn Boot Camp system and/or the broader fitness industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support, undermining the value of the brand you are buying into.

Potential Mitigations

• When analyzing any FDD, it's prudent to have your business advisor thoroughly vet the backgrounds of all key executives listed in Item 2.
• Contacting existing franchisees to inquire about their direct experiences with the management team can provide valuable, real-world insight.
• An attorney can help you understand if the experience level of the management team justifies the fees and obligations in the agreement.

Explanation

This risk was not identified in the FDD package. FDD Item 1 does not indicate that the franchisor is owned by a private equity firm. Private equity ownership can introduce risks, as their typical focus on short-term returns may lead to decisions, such as cutting support or increasing fees, that benefit investors at the expense of franchisees' long-term profitability.

Potential Mitigations

• For any franchise, it's wise to have your attorney investigate the ownership structure to identify any controlling entities.
• Should you encounter a PE-owned franchisor, a business advisor can help you research the firm's history with other franchise brands.
• Talking to franchisees who have been through a PE acquisition can offer insight into changes in the system's culture and support.

Explanation

This risk was not identified. FDD Item 1 discloses that the parent company is Burn Holdings, LLC, which was part of a recent internal reorganization. The franchisor itself, Kline Franchising, Inc., provides its own audited financial statements. Failure to disclose a parent company or its financials when required can obscure the true financial backing and stability of the franchisor, hiding potential risks from you.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all relevant parent and affiliate entities are listed.
• An accountant can help determine if a parent company's financial guarantee is necessary and, if so, whether their financials are provided.
• Questioning the franchisor directly about the roles and responsibilities of any parent company is a key due diligence step.

Explanation

This risk was not identified, as FDD Item 1 explicitly states, "We do not have any predecessors." A predecessor is a company from which the franchisor acquired the main assets of the business. A history of predecessor failure, bankruptcy, or litigation can be a significant red flag, indicating potential inherited problems with the business model or brand.

Potential Mitigations

• For any FDD, it is crucial that your attorney reviews Item 1 to identify any disclosed predecessors.
• If a predecessor is listed, a business advisor can help you conduct independent research into that company's history.
• Contacting franchisees who operated under a predecessor can provide valuable insight into the evolution and stability of the system.

Explanation

This risk is not identified. Item 3 discloses a single regulatory action from 2017 related to selling unregistered franchises, but no pattern of litigation involving fraud or contract disputes with franchisees. A pattern of such lawsuits can be a major red flag, suggesting systemic problems in the franchisor's sales process, its relationship with franchisees, or the viability of its business model.

Potential Mitigations

• A thorough review of Item 3 by your attorney is critical for any franchise you consider, to identify the nature and frequency of legal disputes.
• Your attorney can conduct public records searches to see if there is litigation not disclosed in the FDD.
• Contacting former franchisees, especially those who left the system, can provide context for any disclosed litigation.