Explanation

The FDD's Item 20 tables for 2022-2024 show no franchisee terminations, non-renewals, or other cessations of business. However, Exhibit H lists one franchisee who mutually terminated their agreement in early 2025 before opening. While turnover rates are not high based on the historical data presented, this very recent pre-opening departure warrants further investigation.

Potential Mitigations

• It is crucial to contact the former franchisee listed in Exhibit H to understand the reasons for their pre-opening termination, which your business advisor can help facilitate.
• Your accountant should help you track future FDDs to monitor if turnover rates increase as the system matures.
• Ask your attorney to discuss the circumstances of the recent termination with the franchisor for their perspective.

Explanation

This risk was not identified in the FDD Package. The business of kitchen remodeling is a well-established industry with consistent consumer demand, not typically considered a fad. However, it's always wise to assess how a specific business model within an industry is positioned for long-term relevance and changing consumer tastes.

Potential Mitigations

• A business advisor can help you research the long-term stability and projected growth of the home remodeling market in your specific area.
• Discuss with the franchisor their strategies for innovation and adapting to new design trends, materials, and technologies.
• Your financial advisor can help evaluate the business model's resilience to economic shifts and downturns in the housing market.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates the key executives have prior experience in the remodeling and construction industry. For example, the COO has over 13 years of experience in operations and the remodeling/construction industry. This experience may be beneficial in managing the operational aspects of the franchise system.

Potential Mitigations

• During your calls with existing franchisees, it is still worthwhile to inquire about their direct experiences with management's competence and support.
• A business advisor can help you further investigate the backgrounds of the key leadership team to confirm their industry track record.
• Asking the franchisor about their long-term vision and strategic leadership plans can provide additional insight.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose that the franchisor is owned by a private equity firm. The franchisor, Cabinet IQ Franchising, LLC, is described as a subsidiary of Cabinet IQ Holdings, LLC, and key individuals appear to be the founders and operators. This suggests that decisions may be driven by brand-building rather than short-term investor return timelines.

Potential Mitigations

• Your attorney should still confirm the ownership structure and inquire about any plans for a future sale of the company.
• A business advisor can help research the backgrounds of the owners to understand their long-term commitment to the brand.
• It is always prudent to ask existing franchisees about their perception of the franchisor's long-term goals.

Explanation

This risk was not identified in the FDD Package. The FDD's Item 1 clearly discloses the parent company, Cabinet IQ Holdings, LLC. Furthermore, while the franchisor's financials in Item 21 show instability, the franchisor appears to be a start-up, and the use of unaudited financials is not an issue here as audited financials are provided. There does not appear to be a failure to disclose a critical parent entity.

Potential Mitigations

• Your accountant should review the financial statements of the franchisor, noting the relationship with the parent company.
• It is advisable for your attorney to confirm if the parent company provides any financial or performance guarantees for the franchisor's obligations.
• A business advisor can help you understand the operational relationship between the franchisor and its parent.

Explanation

This risk was not identified in the FDD Package. Item 1 states clearly that the franchisor has no predecessors. The affiliate, Cabinet Plus, LLC, and a prior sole proprietorship are disclosed, but the franchising entity itself does not appear to have acquired the system from a prior franchisor. This reduces the risk of inheriting undisclosed historical problems from a predecessor entity.

Potential Mitigations

• Your attorney should confirm the corporate history and ensure no predecessor entities that should have been disclosed were omitted.
• In discussions with the franchisor, asking about the full history of the brand, including its pre-franchising operations, can provide valuable context.
• A business advisor can assist in researching the operating history of the affiliate companies mentioned in Item 1.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "No litigation is required to be disclosed in this item." This indicates the franchisor, its predecessors, and key personnel have not been involved in the types of litigation that would legally require disclosure, such as actions involving fraud, franchise law violations, or other significant disputes. The absence of such litigation is a positive indicator.

Potential Mitigations

• Your attorney can conduct an independent public records search to verify the absence of significant litigation.
• It is still beneficial to ask current and former franchisees about any disputes they may be aware of, even if they haven't resulted in formal litigation.
• Maintaining open communication with the franchisor and having your business advisor monitor industry news can provide early warnings of future issues.