Explanation

This risk, which involves a high rate of franchisees leaving the system, was not identified. As Butterfly LLC is a new franchisor, Item 20 reports that no franchises have been sold, so there is no history of franchisee turnover. While this means no negative trend is present, it also means there is no track record of franchisee satisfaction or success to evaluate.

Potential Mitigations

• Your business advisor should help you monitor the franchisor's annual FDD updates in future years to track franchisee turnover rates as the system grows.
• In your due diligence, asking the franchisor about their strategies for franchisee retention and success is advisable.
• An attorney can explain how franchisee turnover data, once available, serves as a key indicator of system health.

Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates that Butterfly LLC is a new franchise system and has not yet sold any franchises. Therefore, the risk of growth outpacing the franchisor's support capabilities is not currently present, though it is a potential future risk to monitor if the system begins to sell franchises quickly.

Potential Mitigations

• It is wise to ask the franchisor about their strategic plan for scaling their support infrastructure to match future franchise sales.
• A business advisor can help you assess the franchisor’s capacity for providing support as the system grows.
• Your attorney can review the franchisor's contractual support obligations to understand what you are entitled to receive as the system expands.

Explanation

This risk was not identified. The business focuses on in-home personal care services, which is a well-established sector of the healthcare industry driven by long-term demographic trends, such as an aging population. It does not appear to be a business model based on a short-term fad or novelty, suggesting a more stable underlying market demand.

Potential Mitigations

• Engaging a business advisor to research local and national trends in the home healthcare industry can confirm market sustainability.
• Your accountant can help you analyze the long-term financial viability of this industry in your specific market.
• Asking the franchisor about their plans for service innovation and long-term market adaptation is a recommended part of due diligence.

Explanation

This risk was not identified in the FDD package. Item 1 and Item 2 do not indicate that Butterfly LLC is owned or controlled by a private equity firm or a similar type of investment fund. The franchisor appears to be a new, independent entity founded by its president.

Potential Mitigations

• An attorney can confirm the ownership structure of the franchisor by reviewing corporate records.
• During due diligence, you could ask the franchisor about their long-term ownership plans and whether a sale is anticipated.
• A business advisor can explain the potential pros and cons that private equity ownership can bring to a franchise system.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states, "We do not have any parents or predecessors." This indicates Butterfly LLC is a standalone entity and not a subsidiary of a larger corporation whose financials might be relevant but undisclosed. The risk of hidden issues from a parent or predecessor company does not appear to be present.

Potential Mitigations

• It is good practice to have your attorney verify the franchisor's corporate structure and history.
• A business advisor can help you research the background of the franchisor's principals to ensure there are no undisclosed, relevant business histories.
• An accountant can confirm that the financial statements provided are for the correct legal entity offering the franchise.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that Butterfly LLC has no predecessors. The FDD is transparent about the affiliate business operated by the founder, but this entity is not defined as a legal predecessor from which assets were acquired. Therefore, there is no hidden history of a prior entity's potential problems.

Potential Mitigations

• Your attorney should confirm the corporate history as part of the due diligence process.
• Asking the franchisor to explain the full history of the brand and the affiliate business can provide additional context.
• A business advisor can help you understand the distinction between an affiliate and a legal predecessor in franchising.

Explanation

This risk was not identified. Item 3 of the FDD states there is no litigation that requires disclosure. As a newly formed company that has not yet sold any franchises, it is expected that there would be no history of lawsuits with franchisees, regulators, or other parties.

Potential Mitigations

• It is still prudent to have your attorney perform a public records search for any litigation involving the franchisor or its principals.
• A business advisor can help you establish a process for monitoring the franchisor’s litigation history in future FDD updates.
• You should always consider any future litigation disclosed in Item 3 as a serious data point when evaluating system health.