Explanation

The data in Item 20 does not indicate a high rate of franchisee turnover through terminations, non-renewals, or other cessations. However, the franchise system is very new, having only started franchising in 2022, so this historical data has limited value in predicting future stability. High turnover can be a key indicator of systemic problems, such as a lack of franchisee profitability or poor franchisor support.

Potential Mitigations

• It is important to ask current franchisees about their satisfaction and profitability to gauge the system's health, a process your business advisor can guide.
• Speaking with any franchisees who may leave the system in the future can provide invaluable, unfiltered insight.
• Your attorney can help you formulate questions for the franchisor about their franchisee support and retention strategies.

Explanation

This risk was not identified. The business model, which involves providing professional cleaning services to restaurants, appears to be based on an established, ongoing commercial need rather than a temporary trend or fad. Such services generally have a consistent market, though they are subject to competition and economic cycles affecting the restaurant industry.

Potential Mitigations

• Independent research into the local restaurant and commercial cleaning market, with help from a business advisor, is useful to assess long-term demand.
• Evaluating the business model's resilience to economic downturns that affect the restaurant industry is a conversation to have with your financial advisor.
• Discussing the franchisor's plans for service innovation with them can provide insight into their long-term vision.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose ownership by a private equity firm. Franchisees in PE-owned systems can sometimes face pressures related to short-term investor return goals, which may not always align with the long-term health of franchisees. This does not appear to be a factor in this franchise system based on the documents provided.

Potential Mitigations

• Confirming the ownership structure with your attorney is always a prudent step in due diligence.
• It's good practice to ask the franchisor about any long-term plans for selling the company, which a business advisor can help you frame.
• Understanding the franchisor's assignment rights in the Franchise Agreement is important, a task for your attorney.

Explanation

This specific risk was not identified, as Item 1 explicitly states that the franchisor does not have a parent company. In some cases, a financially weak franchisor may be a subsidiary of a stronger parent, whose financials become important for assessing overall stability. That situation does not appear to apply here. The key risk is the franchisor's own disclosed financial condition.

Potential Mitigations

• Your accountant should still focus on the stand-alone financial health of the franchisor entity as disclosed in Item 21.
• A business advisor can help you research the background of the individual owners to understand their financial standing and business history.
• Your attorney can confirm the corporate structure and ensure there are no undisclosed controlling entities.

Explanation

This risk was not identified, as the franchisor states in Item 1 that it has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. When predecessors exist, their history of litigation, bankruptcy, or franchisee relations can be an important indicator of potential inherited problems in the franchise system. This does not appear to be a concern here.

Potential Mitigations

• While no predecessor is listed, your attorney can still verify the history of the trademarks and key personnel to ensure a clean business lineage.
• It's wise to ask early franchisees about the history of the business concept, which your business advisor can help with.
• Researching the business history of the key executives listed in Item 2 can provide additional context.

Explanation

This risk was not identified. Item 3 of the FDD, which requires the disclosure of certain types of material litigation, reports no such cases involving the franchisor, its predecessors, or its management. A pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a significant red flag about a franchise system's integrity and viability. This does not appear to be an issue here.

Potential Mitigations

• An attorney can conduct an independent public records search to verify the absence of significant litigation.
• Asking current and former franchisees about any informal disputes or disagreements with the franchisor can provide valuable context.
• It's good practice for your attorney to review the dispute resolution clauses in the Franchise Agreement to understand how conflicts are handled.