Explanation

The risk of high franchisee turnover was not identified in the FDD. According to Item 20 data, only one franchised unit was terminated in the last three years, with no non-renewals or other cessations. Generally, high turnover can indicate systemic problems, such as a lack of profitability or poor franchisor support. While turnover for franchised units appears low, you should still investigate the reasons for the single termination.

Potential Mitigations

• It is still advisable to contact current and former franchisees listed in Item 20 to discuss their experiences and satisfaction with the system.
• Your business advisor can help you analyze the growth in affiliated locations versus franchised ones to understand the franchisor's primary focus.
• An attorney can help you frame questions for the franchisor regarding their relationship with and support for their franchisees.

Explanation

This risk was not identified in the FDD package. Martial arts training is a well-established industry with a history of sustained consumer demand. This is not a business model based on a new or fleeting trend, which reduces the risk of the business becoming obsolete due to changing fads. However, local market competition and management execution remain key factors for success.

Potential Mitigations

• Your business advisor can help you research the long-term stability and competitive landscape of the martial arts industry in your local market.
• Developing a business plan with your accountant that accounts for potential shifts in consumer fitness preferences is a sound strategy.
• An attorney can review the agreement to ensure you have some flexibility to adapt to local market needs over the long term.

Explanation

This risk was not identified in the FDD package. There is no indication in Item 1 or elsewhere that CMAII is owned or controlled by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. The absence of this ownership structure may indicate more stability in the franchisor's operational philosophy.

Potential Mitigations

• As a general practice, it's wise to understand the complete ownership structure of any franchisor by having your attorney review Item 1.
• A business advisor can help you research the reputation and track record of any individuals or entities that control the franchisor.
• Consulting with your attorney about the implications of the 'Assignment by Franchisor' clause is important regardless of current ownership.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any parent company for Champions Martial Arts International Inc. Therefore, the franchisor's own financial statements are the primary source for assessing financial stability. In franchising, if a franchisor is a subsidiary, the parent's financials can be critical to understanding the true financial backing of the system.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to confirm the absence of any undisclosed parent or controlling entities.
• An accountant should analyze the provided financials to ensure the franchisor appears to be a standalone, viable entity.
• In any franchise review, it is beneficial to ask a business advisor to assess the franchisor's capitalization and resources.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD does not mention any predecessors to the current franchisor. A predecessor is a company from which the franchisor acquired the major portion of its assets. When a predecessor exists, it is important to review their history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems with the system.

Potential Mitigations

• Your attorney can help confirm the franchisor's history and lack of predecessors as disclosed in Item 1.
• Speaking with long-term franchisees or employees can sometimes reveal historical information about the system's origins.
• A business advisor can assist in researching the public record of the franchisor and its principals to ensure a clean history.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." The absence of significant litigation, particularly claims of fraud or breach of contract brought by other franchisees, is a positive indicator. However, this does not guarantee a dispute-free relationship, so understanding the contract's dispute resolution terms remains important.

Potential Mitigations

• Your attorney should still review the dispute resolution clauses in Item 17 and the Franchise Agreement to understand how conflicts are handled.
• It is still valuable to ask current and former franchisees about any informal disputes they may have had with the franchisor.
• A business advisor can help you search public records for any litigation that may not have met the threshold for disclosure in Item 3.