Explanation

This risk was not identified in the FDD package. Rapid, unsupported growth can strain a franchisor's ability to provide adequate training and support. It is important to assess if a franchisor's support infrastructure is keeping pace with its unit growth.

Potential Mitigations

• Your business advisor should help you compare the rate of new franchise openings in Item 20 with the franchisor’s investment in support staff and infrastructure shown in its financial statements.
• Posing questions to both new and established franchisees about the quality and timeliness of the support they receive is a valuable exercise.
• An accountant's review of the franchisor's financial statements can help determine if they have sufficient capital to support their growth.

Explanation

This risk was not identified. The franchisor, Oxi Fresh Franchising Co., Inc. (OFFC), has been franchising since 2006 and has a substantial number of active units. Therefore, it is not considered a new or unproven system. An unproven system would carry higher risks related to the viability of the business model and the adequacy of franchisor support.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your attorney review the business experience of the management team outlined in Item 2.
• A business advisor can help you analyze the system's growth and stability over time as detailed in Item 20.
• Speaking with the earliest-operating franchisees can provide valuable insight into the system's evolution and the franchisor's long-term performance.

Explanation

This risk was not identified. The carpet and surface cleaning industry represents a market with sustained consumer demand. While market trends evolve, the core service is not typically considered a short-term fad. Assessing a business concept's long-term viability is crucial to avoid investing in a business with a limited lifespan.

Potential Mitigations

• For any franchise, working with a business advisor to research the long-term market demand for its products or services is recommended.
• You should assess the franchisor's commitment to research, development, and innovation to ensure the brand remains competitive.
• Your financial advisor can help you consider the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives have substantial experience in the industry and with the franchise system, some since its inception in 2006. Inexperienced management can pose a risk to a franchise system, potentially leading to inadequate support, poor strategic decisions, and a higher failure rate.

Potential Mitigations

• It is always a good practice to have a business advisor help you thoroughly vet the management team’s background for any franchise opportunity.
• Speaking with current franchisees about their perception of management's competence and the quality of support is an important due diligence step.
• Your attorney can help you assess whether the franchisor has engaged experienced consultants if the management team were new to franchising.

Explanation

This risk was not identified. Item 1 indicates the franchisor is owned by Barnett Enterprises Corp. and does not appear to be owned by a private equity firm. PE ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, which may affect decisions on fees, support, and brand investment.

Potential Mitigations

• Should you encounter a PE-owned franchisor, your business advisor could help research the firm's track record with other franchise concepts.
• It would be beneficial to ask franchisees about any changes in support or strategy since a potential PE acquisition.
• An attorney can help you understand the implications if the franchise system is sold, a common exit strategy for private equity firms.

Explanation

This risk was not identified in the FDD package. Item 1 states the franchisor has no predecessors, and Item 4 indicates no bankruptcy history for the franchisor, its management, or predecessors. A history of predecessor failure, bankruptcy, or litigation can be a significant red flag, potentially indicating inherited problems within the franchise system.

Potential Mitigations

• In any FDD review, it's wise to have your attorney carefully check Item 1 for any disclosed predecessors.
• If a predecessor is listed, conducting independent research on that entity's history can provide valuable context.
• Asking long-tenured franchisees about their experiences under any previous ownership is a key due diligence step.

Explanation

This risk was not identified in the FDD package, as Item 3 states, "No litigation is required to be disclosed in this Item." A clean litigation history is a positive indicator. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, can be a major red flag about a franchisor's practices and system health.

Potential Mitigations

• It is always prudent to have your attorney review the litigation disclosures in Item 3 for any franchise you consider.
• Even with no disclosed litigation, performing an online search for news articles or discussions related to the franchisor can sometimes reveal disputes.
• Asking current and former franchisees about their relationship with the franchisor can provide insight into potential dispute-related issues.