Explanation

This risk was not identified in the FDD package. An unproven franchise system typically has a very short operational history, few operating units, and inexperienced management. This can increase risks related to the viability of the business model and the quality of franchisor support. While this system is relatively small, it has been franchising since 2012, which provides some operational history.

Potential Mitigations

• A business advisor can help you research the history and track record of any franchise system you consider.
• Contacting the earliest franchisees in a system can provide valuable insight into its evolution and the franchisor's learning curve.
• Your accountant can assess whether a young franchisor is adequately capitalized to support its franchisees.

Explanation

This risk was not identified in the FDD package. Chiropractic care is a long-established health service with consistent consumer demand. While specific business models may evolve, the core service is not based on a short-term trend or fad, which reduces the risk of the entire market disappearing once public interest wanes. Your long-term success will depend more on operational execution and local market factors.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the long-term sustainability and market demand for its products or services.
• It is wise to research industry trends to understand how a concept is positioned for future growth and potential market shifts.
• Your financial advisor can help model the business's resilience to economic downturns or changes in consumer spending habits.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key management personnel have relevant industry experience. The founder has been operating a similar center since 2010 and franchising since 2012, and other officers have experience in compliance and finance. In any franchise, it is important that management has expertise in both the specific industry and in managing a franchise system to provide effective support.

Potential Mitigations

• Your business advisor can help you research the backgrounds of the franchisor's key executives listed in Item 2.
• When speaking with existing franchisees, it is useful to ask about their direct experiences with the management team's competence and responsiveness.
• An attorney can help you understand the commitments for support outlined in Item 11.

Explanation

This risk was not identified in the FDD package. FDD Item 1 does not indicate that ChiroWay LLC is owned or controlled by a private equity firm. When a franchisor is owned by a PE firm, there can be a risk that decisions are focused on short-term investor returns, which may not always align with the long-term health of franchisees' businesses. This does not appear to be a factor here.

Potential Mitigations

• For any franchise, your attorney should review Item 1 to identify the ownership structure, including any parent or private equity involvement.
• If a franchisor is PE-owned, a business advisor can help you research the firm's track record with other franchise brands.
• Interviewing franchisees about any changes in system focus since a change in ownership is a key due diligence step.

Explanation

This risk was not identified in the FDD package. FDD Item 1 identifies ChiroWay LLC as the primary entity and does not mention a parent company. If a franchisor is a subsidiary of a larger parent, it is important to understand the parent's role and financial stability, as it can significantly impact the franchise system's resources and long-term viability. This does not appear to be a concern in this case.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure as disclosed in Item 1.
• If a parent company exists and provides a guarantee, an accountant should review its financial statements if they are provided.
• In cases with a parent company, it's wise to ask your business advisor about the parent's commitment to the franchise brand.

Explanation

This risk was not identified in the FDD package. Item 1 properly discloses a predecessor entity, ChiroWay of Woodbury, PLLC. However, Items 3 and 4 do not indicate any negative history, such as litigation or bankruptcy, associated with this predecessor. A lack of adverse history from a predecessor is a positive sign, though due diligence on the entire history of the brand is always recommended.

Potential Mitigations

• Your attorney should review the disclosures in Items 1, 3, and 4 for any information related to predecessor entities.
• When speaking with long-term franchisees, you can inquire about their experiences under any previous ownership or corporate structure.
• A business advisor can help you research the history of a brand, including any predecessor companies, for a more complete picture.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD explicitly states that there is no litigation that requires disclosure. A clean litigation history is a positive indicator, as a pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a significant red flag about the health and integrity of a franchise system.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent public records search for litigation involving the franchisor or its principals.
• Asking current and former franchisees about any disputes, even those not rising to the level of disclosed litigation, can provide valuable context.
• A business advisor can help you understand what a typical level of litigation might be for a system of a similar size and age.