Explanation

This risk was not identified in the FDD package. The tables in Item 20 show no franchised outlets have been terminated, ceased operations, or not renewed over the past three years. Low turnover can be a positive indicator of system health and franchisee satisfaction. However, this is a small system, so the data set is limited. You should still investigate franchisee satisfaction as part of your due diligence.

Potential Mitigations

• Speaking with current and former franchisees from the list in Exhibit J is a crucial step to verify satisfaction levels, with guidance from your business advisor.
• Your attorney can help you formulate questions for franchisees about their relationship with Cinch Franchise, LLC (Cinch Franchise) and their intent to renew.
• An accountant can help you review the Item 20 data for any subtle trends over the three-year period.

Explanation

This risk was not identified in the FDD package. The growth of the franchise system, as shown in Item 20, appears to be steady and controlled rather than excessively rapid. While any growth requires resources, the rate of expansion itself does not appear to be a primary risk factor. In a healthy system, steady growth can increase brand recognition and network value. It is important that growth does not outpace the franchisor's support capabilities.

Potential Mitigations

• Engaging a business advisor to question the franchisor on their plans for scaling support infrastructure to match future growth is a prudent step.
• You should discuss the franchisor's capacity for controlled growth with a range of existing franchisees.
• Your accountant can review the franchisor's financials to assess if they have the resources to support their projected growth.

Explanation

This risk was not identified in the FDD package. The franchised business is an Information Technology (I.T.) support service for other businesses, which is a well-established industry with consistent demand. The business model is not based on a fleeting trend or novelty. Such businesses provide essential services, suggesting a lower risk of becoming a fad compared to concepts tied to temporary consumer interests.

Potential Mitigations

• Your business advisor can help you research the long-term demand and competitive landscape for I.T. support services in your local market.
• Investigating the franchisor's plans for adapting to technological changes is a wise precaution.
• It is prudent to assess the business model's resilience to economic downturns with your financial advisor.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have been with the franchisor since its formation in 2019 and have prior, long-term experience with an affiliated company in the same industry dating back to 2011 or 2015. This suggests the management team possesses relevant industry and operational experience, which is a positive factor for a prospective franchisee.

Potential Mitigations

• You should still verify the quality of management by discussing their competence and responsiveness with current franchisees.
• A business advisor can help you assess if the management team's experience aligns with your own business goals and support needs.
• Asking the franchisor about their strategic vision and leadership philosophy during discovery day is recommended.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is owned by its member, and Item 2 identifies an individual as the Managing Member. There is no disclosure of ownership by a private equity firm. This typically means decisions may be more focused on the long-term health of the brand rather than short-term investor returns, which can be a potential benefit.

Potential Mitigations

• It is still wise to ask your attorney to confirm the ownership structure and inquire about any future plans for a sale of the company.
• Discussing the long-term vision and ownership stability with the franchisor directly is a good practice.
• A business advisor can help you understand the pros and cons of different franchise ownership structures.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor does not have a parent company. It does, however, clearly disclose its affiliate relationships with Cinch I.T. MA and Cinch HD, LLC, and their roles within the system. The necessary disclosures appear to have been made, providing a clear picture of the corporate structure.

Potential Mitigations

• Your attorney should still review the affiliate relationships described in Item 1 to ensure you understand all potential conflicts of interest.
• It is prudent to have your accountant review the financial statements in conjunction with the affiliate disclosures.
• Asking the franchisor to explain the roles and revenue flows between the affiliated companies is recommended.

Explanation

This risk was not identified in the FDD package. Item 1 discloses that the intellectual property was purchased from a predecessor in 2015. However, Items 3 and 4 do not report any litigation or bankruptcy history related to the franchisor, its management, or its predecessors. This suggests a clean operational history since the assets were acquired, though the history of the original predecessor entity remains largely unknown.

Potential Mitigations

• A business advisor can help you conduct independent research on the predecessor entity, Clark Empire, Inc., for any relevant history.
• You might ask the franchisor for more context on the 2015 asset purchase.
• Your attorney should confirm that the intellectual property transfer was properly executed and that Cinch Franchise holds clear title.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. This can be a positive sign, suggesting a non-contentious relationship with franchisees and others. However, the absence of disclosed litigation does not guarantee a problem-free system, as disputes may be settled before a lawsuit is filed or may not meet the criteria for disclosure.

Potential Mitigations

• Speaking with current and former franchisees is the best way to uncover any history of disputes, with guidance from your business advisor.
• Your attorney can conduct a public records search to look for any litigation that may not have been disclosed.
• It is advisable to ask the franchisor directly about their dispute resolution history.