Explanation

The parent company, ATC Healthcare, Inc. (ATC), has a strong balance sheet with high equity and good liquidity. However, its 2024 income statement shows a significant decline in revenue and net income compared to 2023. Financial notes suggest this is primarily due to the conclusion of a temporary, non-core COVID-19 testing business. While the financial position appears solid, the recent drop in profitability warrants a careful review of the core business's performance trends.

Potential Mitigations

• Your accountant should analyze the parent company's financial statements to assess the profitability and stability of the core non-medical care business, separate from discontinued operations.
• A discussion with your financial advisor is recommended to understand the implications of the parent company's shifting revenue sources.
• Ask the franchisor to explain the recent financial performance trends and their strategy for future growth in the core business.

Explanation

This risk was not identified in the FDD Package. The franchisor, CareBuilders At Home, LLC (CBAH), began offering franchises in January 2012, giving it over a decade of operational history. A new system can pose risks due to unproven business models and potential instability, but this franchise has a significant track record.

Potential Mitigations

• When evaluating any franchise, it is wise to have your business advisor assess the maturity and stability of the business model.
• Consulting with an accountant to review a franchisor's multi-year financial statements helps to verify its operational history and financial health.
• Your attorney can help you understand the legal history by reviewing the disclosures in Item 3.

Explanation

This risk was not identified in the FDD Package. The in-home senior care industry is supported by long-term demographic trends, such as an aging population. This suggests a sustained market demand for the services offered, rather than a business model based on a short-term or fleeting trend.

Potential Mitigations

• A business advisor can help you conduct independent market research to verify the long-term demand for any franchise's products or services.
• It is important to review a franchisor's plans for innovation and adaptation with your business advisor.
• An accountant can help assess a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses a management team with extensive experience in the healthcare, staffing, and franchise industries. Key executives have long tenures with the parent company or relevant executive experience at other senior care franchise brands. This depth of experience is a positive factor.

Potential Mitigations

• When analyzing an FDD, having your attorney and business advisor review the management team's experience in both the specific industry and in franchising is a crucial step.
• Speaking with existing franchisees provides valuable insight into the quality and effectiveness of the management team's support.
• It is prudent to research the professional backgrounds of key executives independently.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a subsidiary of ATC Healthcare, Inc., and there is no disclosure of ownership by a private equity firm. Risks associated with private equity, such as a focus on short-term returns over system health, do not appear to be present here.

Potential Mitigations

• Your attorney can help you research the ownership structure of any franchisor to identify whether a private equity firm is involved.
• If a franchisor is owned by a private equity firm, a business advisor can help investigate the firm's track record with other franchise systems.
• It is always wise to ask current franchisees about any changes in system operations or philosophy.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly identifies ATC Healthcare, Inc. as the parent company, and Exhibit D provides the parent's audited consolidated financial statements, as required. This provides financial transparency into the entity guaranteeing the franchisor's performance.

Potential Mitigations

• Your attorney should always verify that parent companies are properly disclosed in Item 1 of the FDD.
• If a parent company's financial status is critical to the franchisor's viability, an accountant should confirm that the parent's financial statements are included and properly audited.
• Understanding the legal relationship and any performance guarantees between a franchisor and its parent is a key task for your attorney.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses a name change in the franchisor's history but does not mention any predecessors from which substantial assets were acquired. Therefore, risks associated with a negative or undisclosed history from a predecessor entity do not appear to be present.

Potential Mitigations

• A thorough review of Item 1 of any FDD with your attorney is necessary to identify any disclosed predecessors.
• If a predecessor exists, your business advisor can help you research its history and reputation.
• Asking long-term franchisees about their experience under any previous ownership is a valuable part of due diligence.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. This indicates an absence of recent or ongoing material legal disputes involving the franchisor, which is a positive sign regarding the franchisor's relationship with its franchisees and its legal compliance.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation, paying close attention to lawsuits initiated by other franchisees.
• It is wise to have legal counsel conduct a public records search for litigation that may not have been required to be disclosed.
• Discussing any past or present legal issues with current and former franchisees can provide important context.