Explanation

This risk was not identified. The Coder School SF began franchising in 2015 and has grown to over 60 locations, indicating it is an established system. Generally, investing in a new or unproven franchise carries higher risks, as the business model and support systems may not be fully developed, and brand recognition is likely to be minimal, impacting your ability to attract customers.

Potential Mitigations

• When evaluating any franchise, it's wise to have your business advisor assess the franchisor’s franchising history and the maturity of its systems.
• For newer systems, your attorney might seek to negotiate more franchisee-favorable terms to offset the higher inherent risk.
• An accountant can help scrutinize the financial stability of a younger franchisor, which is critical for its survival and ability to provide support.

Explanation

This risk does not appear to be present. The business of teaching children computer coding is part of the broader, established education and technology sectors, not a short-term trend. The franchisor's operating history since 2014 suggests a sustainable market. Investing in a fad business is risky because consumer interest can decline rapidly, leaving you with long-term obligations after the trend has passed.

Potential Mitigations

• A business advisor can help you research long-term market trends for any industry you consider entering.
• When evaluating a business concept, your attorney can review the franchise agreement term to ensure it aligns with a realistic business lifecycle.
• Discuss the franchisor's plans for curriculum updates and innovation to gauge their long-term vision.

Explanation

This risk was not identified. The management team described in Item 2 has been with the company since its inception, and the CEO has prior, relevant experience as a franchisee. Franchisors with inexperienced management can be a risk, as they may lack the specific skills needed to build and maintain effective support systems and manage a network of franchisees successfully, even if they understand the core business.

Potential Mitigations

• Always task your business advisor with thoroughly vetting the backgrounds of the key executives listed in Item 2.
• Speaking with a range of franchisees about their direct experiences with the management team can offer valuable, real-world insight.
• Your attorney can help assess whether the franchisor's stated obligations in the FDD seem realistic given the management team's experience.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. This risk can arise when a PE firm acquires a franchise system, as their typical focus on short-term returns may lead to decisions that prioritize profit extraction—such as cutting franchisee support or increasing fees—over the long-term health and profitability of the franchisees and the brand.

Potential Mitigations

• If considering a PE-owned franchise, it is crucial to have your business advisor research the firm's history with other franchise brands.
• Your attorney should scrutinize the franchise agreement for terms that might facilitate a quick exit for the PE owner, potentially to your detriment.
• Asking current franchisees about changes since a PE acquisition can provide insight into the ownership's priorities.

Explanation

This risk is not present, as Item 1 clearly states that the franchisor does not have a parent company. This risk arises when a franchisor is a subsidiary of a larger entity, but the parent company's identity or its financial information (if required) is not disclosed. This can conceal the true financial stability and control structure behind the franchise, leaving you unaware of potential risks at the parent level.

Potential Mitigations

• Your attorney can help you investigate the corporate structure of a franchisor to ensure all relevant parent and affiliate companies are properly disclosed.
• If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing the parent's audited financial statements.
• A business advisor can help assess the potential influence of a parent company on the franchise system's strategy and operations.

Explanation

This risk is not applicable, as Item 1 states the franchisor has no predecessors. This risk becomes relevant when a franchisor has acquired the franchise system from a previous entity. In such cases, it is important that the FDD provides a complete history, including any litigation or bankruptcy from the predecessor, to give you a full picture of the system's past performance and challenges.

Potential Mitigations

• When a predecessor is disclosed in Item 1, your attorney should carefully review their history as detailed in Items 3 and 4.
• A business advisor can assist in researching a predecessor's public reputation or news history for any undisclosed issues.
• Asking long-term franchisees about their experience under any previous ownership can reveal important historical context.