Explanation

This specific risk was not identified in the FDD Package. Item 20 shows the franchise system is new, with two outlets opening in the most recent year and no terminations, non-renewals, or other cessations. While there is no history of turnover yet, monitoring this data in future FDDs would be important. High turnover can signal systemic problems, such as unprofitability or franchisee dissatisfaction.

Potential Mitigations

• As the system grows, your business advisor can help you analyze Item 20 data annually to calculate the franchisee turnover rate.
• Speaking with a range of franchisees listed in Item 20 is a vital due diligence step recommended by legal counsel.
• It is wise to have an accountant compare system turnover rates to any available industry benchmarks.

Explanation

This risk was not identified in the provided documents. The business of sports court construction, repair, and maintenance is a specialized trade rather than a concept based on a fleeting trend. While subject to economic cycles, the core services address a durable need for residential and commercial properties, suggesting it is not a fad business.

Potential Mitigations

• A business advisor can help you research the long-term demand and competitive landscape for these services in your local market.
• Investigating the industry's historical trends and resilience during economic shifts is a prudent step for your financial advisor to undertake.
• You should ask your attorney to review any clauses that might limit your ability to adapt if market demand changes.

Explanation

This risk was not identified in the FDD Package. There is no indication in the provided documents that Cortz by FSP, Inc. (CFSP) is owned or controlled by a private equity firm. When present, PE ownership can sometimes lead to a focus on short-term profitability over the long-term health of the brand and its franchisees. It is a factor that warrants additional due diligence.

Potential Mitigations

• Your attorney can verify the franchisor's ownership structure through public records to confirm the absence of PE involvement.
• Understanding the franchisor's long-term vision for the brand is a key topic to discuss with a business advisor.
• Reviewing the assignment clause in the Franchise Agreement with legal counsel is important to know your rights if the company is sold.

Explanation

This risk was not identified. The FDD appears to properly disclose its affiliate, First Serve Productions, Inc. There is no mention of a parent company whose financials would be material to your investment decision. In some cases, franchisors might be thinly capitalized subsidiaries, making the financial health of an undisclosed parent company a critical piece of information for assessing risk.

Potential Mitigations

• A review of the corporate structure by your attorney can confirm the relationships between all affiliated entities.
• An accountant can help determine if the franchisor entity appears adequately capitalized on its own.
• Asking the franchisor for an organizational chart can provide clarity, a step your business advisor might suggest.

Explanation

This risk was not identified in the FDD Package, as there is no mention of a predecessor entity from which CFSP acquired the business. When a franchisor has a predecessor, it is important to scrutinize that entity's history, including any past litigation, bankruptcies, or franchisee turnover, as it can reveal inherited problems or risks for the current system.

Potential Mitigations

• Your attorney should always confirm from Item 1 whether any predecessors are disclosed.
• If a predecessor exists, researching its history online and asking long-tenured franchisees about it is a critical step.
• A business advisor can help you understand how a predecessor's history might impact the current franchise system.

Explanation

This risk was not identified in the FDD package. The documents state there is no material litigation involving the franchisor. A pattern of lawsuits, particularly claims of fraud or misrepresentation brought by other franchisees, is a significant red flag. It can indicate systemic problems with the franchisor's business practices, disclosure integrity, or overall franchisee relations.

Potential Mitigations

• It is crucial for your attorney to carefully review Item 3 of any FDD for disclosures of litigation.
• Even if no litigation is disclosed, conducting independent online searches for franchisee complaints can be a valuable step.
• A business advisor can help you assess the nature of any disclosed litigation and its potential impact on the franchise system.