Explanation

This risk was not identified in the FDD package. An analysis of Item 20 data does not show an unusually high rate of franchisee terminations, non-renewals, or other cessations of business. High turnover can be a major red flag indicating systemic problems, such as a lack of profitability or franchisee dissatisfaction. In this case, the reported turnover rates appear to be within a reasonable range for a mature system.

Potential Mitigations

• It is still wise to discuss system stability and satisfaction levels with a broad range of current and former franchisees listed in Item 20.
• Developing a good relationship with your franchise attorney can help you navigate issues if system health changes in the future.
• Your business advisor can help you monitor system trends and franchisee sentiment throughout your term.

Explanation

This risk was not identified. Rapid expansion can strain a franchisor's ability to provide adequate support, training, and quality control. Reviewing the outlet growth data in Item 20 against the franchisor's resources disclosed in Item 21 is key to assessing this risk. CGI's recent outlet numbers show a stable to slightly declining count, not rapid growth, suggesting this particular risk is not present.

Potential Mitigations

• It remains valuable to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• An accountant can help you review a franchisor's financial statements to gauge their capacity for supporting the existing system.
• Consulting with a business advisor can help you understand the typical support needs for a franchise in this industry.

Explanation

This risk was not identified. According to Item 1, the Color Glo business concept and system have been in operation since 1976. This long operational history suggests the business model is established and has endured various economic cycles. The system is mature and not considered new or unproven, which typically reduces risks associated with startup franchise systems that lack a significant track record of success or support.

Potential Mitigations

• It is still beneficial to discuss the system's evolution and current market relevance with long-tenured franchisees.
• A business advisor can help you assess the brand's current competitive position despite its long history.
• Your attorney should still review all documents for terms that might be outdated or less favorable in the current market.

Explanation

This risk does not appear to be present. The business model, focused on color restoration and repair for automotive, marine, and furniture interiors, has been in operation since 1976 according to Item 1. This longevity suggests it serves a consistent market need rather than being a temporary fad. A fad business carries the risk of declining consumer interest, which could jeopardize your long-term investment after the trend fades.

Potential Mitigations

• Engage a business advisor to independently research the long-term market demand and competitive landscape for restoration services.
• Ask the franchisor and existing franchisees about how the business has adapted to market changes and competition over the decades.
• Your accountant can help you model financial scenarios based on potential shifts in market demand.

Explanation

This risk was not identified. Item 2 shows that the key executives, Gary E. Smith and Scott L. Smith, have extensive, long-term experience with the Color Glo system, with involvement dating back to 1976. This level of tenure and direct experience in both the industry and the specific franchise system is a positive indicator and mitigates the risk typically associated with inexperienced management.

Potential Mitigations

• It is still a good practice to speak with current franchisees to confirm that management's experience translates into effective support and leadership.
• Your business advisor can help you assess how the leadership team's long tenure affects the system's innovation and adaptability.
• Consulting an attorney to review the franchisor's obligations in the agreement ensures you understand the support you are contractually owed.

Explanation

This risk does not appear to be present. Item 1 indicates that CGI is the franchisor and does not disclose ownership by a private equity firm. This type of ownership can sometimes lead to decisions that prioritize short-term investor returns over the long-term health of the franchise system. The absence of private equity ownership suggests that strategic decisions may be more focused on the core business and its franchisees.

Potential Mitigations

• It is always prudent to ask an attorney to help you understand the franchisor's ownership structure and any affiliated companies.
• A business advisor can help you research the background and track record of the franchisor's current owners.
• In discussions with current franchisees, you can inquire about their perception of the ownership's commitment to the brand.

Explanation

This risk was not identified. Item 1 of the FDD clearly identifies CGI International, Inc. as the franchisor and does not mention a parent company. Item 21 provides the audited financial statements for CGI itself. Since there is no parent company disclosed whose financials would be material to understanding the risks of the franchise, there does not appear to be an issue of non-disclosure in this regard.

Potential Mitigations

• Your attorney can help you verify the corporate structure and confirm the absence of a controlling parent entity.
• An accountant should review the provided franchisor financials to ensure they are complete and audited as required.
• When speaking with the franchisor, you can directly ask about any parent or affiliated companies to ensure full transparency.

Explanation

This risk was not identified in the FDD. Item 1 states there have been no predecessors in the past ten years. While the business has a history involving mergers with prior entities, these events are outside the typical disclosure window for predecessor history. A lack of recent predecessor changes means the disclosed operational and financial history in Items 3, 4, and 21 directly reflects the current franchising entity, providing a clearer picture of its recent track record.

Potential Mitigations

• It's still valuable to ask long-tenured franchisees about the company's history and any past ownership changes.
• Your attorney can review the corporate history described in Item 1 to ensure you understand the company's lineage.
• A business advisor can help you assess how the company's long history impacts its current operations and culture.

Explanation

Item 3 discloses one lawsuit from 2012 where a former franchisee alleged the product did not work properly, which was settled with a $70,000 payment to the franchisee. While this was a decade ago and is only a single instance, it is a material disclosure. However, it does not represent a recent or ongoing pattern of litigation with franchisees, which would be a more significant red flag. The risk is therefore present but appears low.

Potential Mitigations

• Your attorney should review the details of the disclosed litigation and discuss its potential implications with you.
• You can ask the franchisor for their perspective on this past dispute and what, if any, changes were made as a result.
• When speaking with other franchisees, you can discreetly inquire about the general nature of franchisee-franchisor relations.