Explanation

Review of the franchisee turnover data in Item 20 for the years 2022, 2023, and 2024 does not indicate a high rate of turnover. The number of terminations and cessations of operation appears low relative to the overall size of the franchise system, which has been expanding. While a stable system is positive, you should still investigate the reasons for any departures.

Potential Mitigations

• It is still advisable to contact a representative sample of former franchisees listed in Item 20 to understand their reasons for leaving the system.
• Your business advisor can help you compare the disclosed turnover rates to available industry benchmarks for context.
• Your accountant should review the transfer data to understand if it indicates a healthy market for resales or potential distress sales.

Explanation

This specific risk was not identified. While the franchisor entity is new (formed in 2023), the Club Pilates system itself began franchising in 2012 and has over 1,000 outlets. A new franchise system typically presents higher risks due to unproven operations, lack of brand recognition, and potential instability. In this case, the system has a long operating history.

Potential Mitigations

• When evaluating any franchise, it is crucial to have your attorney investigate the operating history of both the franchisor entity and the system itself.
• A business advisor can help you assess the maturity and market acceptance of a franchise concept.
• Your accountant should analyze the financials to determine if the system relies on franchise fees from new sales versus ongoing royalties.

Explanation

This specific risk was not identified in the FDD Package. Pilates as an exercise discipline has been established for many decades and has demonstrated long-term consumer demand. While the boutique fitness market is competitive and subject to trends, the core offering is not considered a short-term fad. This suggests a lower risk of the entire business concept becoming obsolete quickly.

Potential Mitigations

• A business advisor can help you assess the long-term viability of any industry and distinguish between sustainable trends and short-lived fads.
• When considering a franchise, it is wise to research its adaptability and plans for innovation to stay relevant in a changing market.
• Your financial advisor can help you analyze if a business model has a high dependency on current trends that may not persist.

Explanation

This specific risk was not identified. The executives detailed in Item 2 appear to have substantial experience in franchising, finance, and high-level corporate management, many within the franchisor's parent company portfolio. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a lack of proven operational systems.

Potential Mitigations

• A business advisor can assist you in researching the backgrounds and track records of the franchisor's key management team.
• It is always prudent to ask existing franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you understand the management structure and its potential impact on the franchise relationship.

Explanation

This specific risk was not identified in the FDD Package. Item 1 clearly outlines the parent company structure, and Item 21 provides audited financial statements for the guarantor entity, XPOF Assetco, LLC. Failure to disclose parent companies or their financials when they guarantee performance or are integral to the system can hide significant financial or operational risks from a prospective franchisee.

Potential Mitigations

• Your attorney should always verify that all parent companies and guarantors mentioned in Item 1 have their financial roles and statements properly disclosed in Item 21.
• If a franchisor is a new or thinly capitalized entity, it is critical for an accountant to assess if a parent guarantee is provided and if the parent's financials are included.
• Always ask your business advisor to help you understand the complete corporate structure of the franchise system.

Explanation

This risk was not identified as the FDD appears to disclose the predecessor history. FDDs must disclose predecessor information so you can see the full history of the brand, including any past issues like litigation or bankruptcy. Incomplete disclosure can obscure a troubled history that might be relevant to your investment decision. The significant litigation disclosed in Item 3 is a separate risk but relates to the overall history.

Potential Mitigations

• A franchise attorney should review Item 1 carefully to identify any predecessors and ensure their history is adequately disclosed in Items 3 and 4.
• If a predecessor is mentioned, asking long-tenured franchisees about their experience under previous ownership can provide valuable insights.
• Your business advisor can help you research the history and reputation of any predecessor entities.