Children's Orchard Logo

Children's Orchard

Children's Orchard, LLC
https://childrensorchardfranchise.com
1-952-923-1223
13895 Industrial Park Blvd, Ste 100, Plymouth, MN 55441

Initial Investment Range

$206,700 to $320,500

Franchise Fee

$20,000 to $25,000

Children’s Orchard, LLC offers individual franchises for the operation of Children’s Orchard® stores, buying from and selling to the retail consumer clothing, equipment, accessories and toys for kids.

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Children's Orchard April 17, 2025 FDD Risk Analysis

Free FDD Library AI Analysis Date: July 16, 2025

DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.

1

Franchisor Stability Risks

Start Here
Total: 10
4
1
5

Disclosure of Franchisor's Financial Instability

High Risk

Explanation

The FDD does not include financial statements for the franchisor, Children's Orchard, LLC. Instead, it relies on a guarantee from an affiliate, Clothes Mentor, LLC, whose financials are provided. This means you have no visibility into the financial health of the actual company you are contracting with. While the guarantee offers some protection, it masks whether the franchisor itself is profitable or financially stable, creating significant uncertainty about its standalone viability.

Potential Mitigations

  • Your accountant should carefully review the provided affiliate financial statements and the terms of the written guarantee in Exhibit H.
  • A discussion with your attorney is crucial to understand the legal enforceability and practical limitations of relying on an affiliate guarantee.
  • Inquire with your business advisor about the risks of contracting with an entity whose own financial performance is not disclosed.
Citations: Item 21, Exhibit A, Exhibit H

High Franchisee Turnover

High Risk

Explanation

Item 20 data reveals a significant and consistent decline in the number of franchised stores, shrinking from 23 to 15 outlets over the last three years with no new stores opening. This represents a 35% reduction in system size. Such a high rate of store closures is a critical indicator of potential systemic problems, which could relate to franchisee profitability, brand strength, or the viability of the business model itself.

Potential Mitigations

  • It is imperative to contact a significant number of former franchisees listed in Exhibit C to understand their reasons for leaving the system.
  • Your accountant should help you analyze the financial implications of this high churn rate on the franchisor's stability and support capabilities.
  • Discussing these turnover statistics with a franchise attorney is essential to fully grasp the potential risks to your investment.
Citations: Item 20

Rapid System Growth

Low Risk

Explanation

This risk was not identified. The FDD does not show rapid growth; in fact, Item 20 data indicates the system has been consistently shrinking in size over the past three years. Uncontrolled growth can strain a franchisor's support systems, but that does not appear to be a current risk here.

Potential Mitigations

  • When evaluating any franchise, it's wise for your accountant to analyze growth patterns in Item 20 to ensure they are sustainable.
  • A business advisor can help you assess whether a franchisor's support infrastructure is keeping pace with its expansion.
  • Consulting with your attorney about the terms governing franchisor support can help clarify their obligations regardless of system size.
Citations: Not applicable

New/Unproven Franchise System

High Risk

Explanation

Although the brand has existed since 1993, the current franchisor has only operated it since 2015. More significantly, Item 20 data shows the system is shrinking, not growing, which raises questions about the current viability and "proof" of the business model under this management. The franchisor also does not operate any of its own stores, relying entirely on the struggling franchisee network for operational validation.

Potential Mitigations

  • In-depth discussions with current and former franchisees are critical to understanding the system's performance under the current ownership.
  • Your business advisor should help you critically evaluate the business model's current market relevance and competitive advantages.
  • An accountant should analyze whether the franchisor's revenue model is sustainable given the declining number of royalty-paying units.
Citations: Items 1, 20

Possible Fad Business

Low Risk

Explanation

This risk was not identified. The business model, which involves buying and selling used children's clothing and accessories, is a well-established retail concept and not considered a fad. Long-term consumer demand for value-priced children's goods is generally stable.

Potential Mitigations

  • For any business concept, it's a good practice to have a business advisor help you research its long-term market trends.
  • An accountant can help model the financial resilience of a business concept under various economic conditions.
  • Before investing, your attorney can review whether the franchise agreement allows for adaptation if market trends do shift.
Citations: Not applicable

Inexperienced Management

Low Risk

Explanation

This specific risk was not identified. Item 2 indicates that the key executives have significant and long-term experience managing other similar resale franchise concepts under the NTY Franchise Company umbrella, such as Clothes Mentor. This suggests the management team is experienced in the franchising and resale industries.

Potential Mitigations

  • When evaluating a franchise, it is always wise to have a business advisor help you research the backgrounds of the key management personnel listed in Item 2.
  • Contacting existing franchisees can provide valuable insight into the practical effectiveness and competence of the management team.
  • Your attorney can help you understand the support obligations the franchisor has committed to in the franchise agreement.
Citations: Not applicable

Private Equity Ownership

Low Risk

Explanation

The FDD does not indicate that the franchisor or its parent company, NTY Franchise Company, LLC, is owned by a private equity firm. While any business can be sold, the specific risks associated with a typical private equity ownership model, such as a focus on short-term returns over system health, do not appear to be present based on the disclosures.

Potential Mitigations

  • It is always prudent to ask a franchise attorney to review the franchisor's assignment rights in the agreement to understand what happens if the business is sold.
  • A business advisor can help research the ownership structure and history of any franchisor you consider.
  • Talking to current franchisees can reveal any changes in philosophy or support that might suggest a shift in ownership focus.
Citations: Not applicable

Non-Disclosure of Parent Company

Low Risk

Explanation

This risk is not present. The FDD clearly discloses in Item 1 that Children's Orchard, LLC's parent company is NTY Franchise Company, LLC. It also discloses the affiliate, Clothes Mentor, LLC, that is providing the financial guarantee.

Potential Mitigations

  • Your attorney should always verify that the parent and affiliate structure disclosed in Item 1 is consistent with information in other items like Item 21.
  • If a parent company is disclosed, your accountant should assess whether its financial statements should have been included under franchise rules.
  • A business advisor can help you understand the potential influence a parent company might have on the franchise system's operations.
Citations: Not applicable

Predecessor History Issues

Medium Risk

Explanation

The FDD discloses that the current franchisor acquired the system from a predecessor in 2015. While no specific negative historical events like litigation for the predecessor are disclosed, the significant decline of the franchise system under the current ownership raises questions about the long-term health and management of the brand since the acquisition. The brand's legacy performance may not be indicative of its current trajectory.

Potential Mitigations

  • Speaking with long-term franchisees who operated under both the predecessor and current franchisor could provide invaluable insight.
  • A business advisor can help you research the history of the brand and its performance prior to the 2015 acquisition.
  • Your attorney can help you frame questions to the franchisor about what changes were implemented after the acquisition.
Citations: Item 1

Pattern of Litigation

High Risk

Explanation

Item 3 discloses two recent, significant arbitration cases brought by franchisees against the franchisor and its affiliates. Both cases involved serious allegations, including fraud and improper financial performance representations, and resulted in substantial settlement payments by the franchisor totaling over one million dollars. This pattern of litigation and the nature of the claims suggest a history of significant disputes with franchisees regarding sales practices and financial disclosures.

Potential Mitigations

  • Your franchise attorney must carefully review the details of the litigation disclosed in Item 3 to understand the nature of the claims.
  • This history should be a primary topic of discussion when you speak with current and former franchisees.
  • Given the allegations relate to financial representations, having your accountant perform an extremely conservative analysis of any potential earnings is critical.
Citations: Item 3
2

Disclosure & Representation Risks

Total: 15
6
1
8

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

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3

Financial & Fee Risks

Total: 10
3
7
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

4

Legal & Contract Risks

Total: 16
2
8
6

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

5

Territory & Competition Risks

Total: 5
2
2
1

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

6

Regulatory & Compliance Risks

Total: 10
4
4
2

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

7

Franchisor Support Risks

Total: 4
0
4
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

8

Operational Control Risks

Total: 12
3
8
1

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

9

Term & Exit Risks

Total: 18
6
6
6

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

10

Miscellaneous Risks

Total: 2
1
1
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.