Explanation

The FDD does not indicate a high rate of franchisee turnover. Item 20 data for the past three years shows no terminations, non-renewals, or other cessations of operation. High turnover can be a major red flag indicating systemic problems, so its absence here is a positive sign. However, past performance does not guarantee future stability.

Potential Mitigations

• Engaging a business advisor to discuss the overall health and growth trajectory of the franchise system can provide valuable context.
• It is still advisable to contact a random sample of franchisees from the list in Exhibit G to discuss their satisfaction and long-term outlook.
• Your attorney can help you formulate questions for current franchisees about their relationship with Cleaners Depot Franchise, LLC (Cleaners Depot).

Explanation

This risk was not identified in the FDD Package. The franchisor, Cleaners Depot, has been offering franchises since 2005 and has a history of operations dating back further, as disclosed in Item 1 and Item 2. An unproven system can pose risks due to untested business models and support structures, but that does not appear to be the case here.

Potential Mitigations

• A business advisor can help you evaluate the franchisor's track record and the maturity of its operating systems.
• Speaking with long-term franchisees from the list in Exhibit G can provide insight into the system's evolution and stability.
• Your accountant can review the historical financial performance disclosed in Item 21 to assess the system's long-term viability.

Explanation

This risk was not identified in the FDD Package. The dry cleaning industry is a long-established service sector with consistent consumer demand. While market trends evolve, the core business of providing cleaning services is not typically considered a fad. Therefore, the risk of the business model becoming obsolete due to shifting trends appears low.

Potential Mitigations

• A business advisor can help you research the long-term stability and future trends within the retail dry cleaning industry in your specific market.
• Review the franchisor's plans for innovation, such as the pickup and delivery services, to gauge their adaptability.
• Discuss the local competitive landscape with a real estate professional to understand market saturation.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have extensive, long-term experience with the company and in the cleaning industry, with most serving in their roles since 2005 or 2006. Inexperienced management can be a significant risk for a franchisee, so the stability and tenure of the leadership team here is a positive factor.

Potential Mitigations

• It is still prudent to conduct independent research on the professional backgrounds of the key executives listed in Item 2.
• When speaking with current franchisees, you can inquire about their direct experiences and the quality of support received from the management team.
• A business advisor can help you assess the overall strength and reputation of the leadership team within the franchise industry.

Explanation

This risk was not identified in the FDD Package. Item 1 and Item 2 do not indicate that the franchisor is owned or controlled by a private equity firm. The management team appears to be composed of long-term owner-operators. Private equity ownership can sometimes lead to a focus on short-term returns over franchisee success, so its absence can be a positive indicator.

Potential Mitigations

• Confirm the ownership structure of the franchisor with your attorney.
• A business advisor can help you research any parent companies or major investors to understand their potential influence.
• Ask current franchisees about any recent changes in ownership or management philosophy.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessors. A franchisor with a history of buying assets from failed systems or with a problematic predecessor could present hidden risks, but that does not appear to be the case here.

Potential Mitigations

• Your attorney can help you perform public records searches to confirm the corporate history provided in Item 1.
• A business advisor can assist in researching the history of the brand and its key executives.
• Asking long-term franchisees about the history of the company can sometimes reveal information not present in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 3 explicitly states that no litigation is required to be disclosed. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a major red flag about a franchisor's practices and system health. The absence of such disclosures is a positive indicator.

Potential Mitigations

• It is still wise to have your attorney conduct independent searches for litigation involving the franchisor or its principals.
• In your discussions with current and former franchisees, you can inquire about any legal disputes or significant disagreements they are aware of within the system.
• A business advisor can help you search for online reviews or news articles that might mention franchisee dissatisfaction.