Explanation

This risk was not identified. The franchisor's audited financial statements provided in Exhibit B show consistent profitability, positive members' equity, and strong liquidity. This financial health suggests Color Me Mine LLC (CMM) has the necessary resources to support the franchise system and meet its obligations to franchisees.

Potential Mitigations

• An experienced franchise accountant should still review the franchisor's complete financial statements, including all notes, to provide an independent assessment of their stability.
• It is wise to have your financial advisor help you understand the key financial metrics and trends over the last three years.
• During discussions with existing franchisees, asking about their perception of the franchisor's financial commitment to the system can provide valuable context.

Explanation

This risk was not identified. The data in Item 20 shows a stable and growing franchise system with very low turnover over the past three years. The tables indicate zero terminations, non-renewals, or franchisor reacquisitions, and only a small number of closures, which is a positive sign of franchisee health and satisfaction.

Potential Mitigations

• Speaking with former franchisees listed in Item 20 can provide direct insight into why they left the system.
• Your business advisor can help you calculate the net turnover rate and compare it against industry benchmarks for a clearer perspective.
• An attorney can help you frame questions to the franchisor regarding the circumstances of any franchisee cessations or transfers.

Explanation

This risk was not identified. Item 20 data reflects steady and controlled growth in the number of outlets over the past three years. While projected future growth is more significant, the franchisor's strong financial position, as shown in Item 21, suggests it has the resources to manage this expansion without degrading franchisee support.

Potential Mitigations

• Asking the franchisor about their plans to scale support staff and systems to match projected growth is a key due diligence step for your business advisor.
• A discussion with newer franchisees can help you gauge the current quality and responsiveness of the franchisor's support systems.
• Your accountant can review the franchisor's investment in support infrastructure relative to its growth.

Explanation

This risk was not identified. Although the current franchisor entity was formed in 2020, Item 1 shows it acquired a well-established franchise system with an operational history dating back to 1996. The business model is mature and has a long track record, and the management team has deep industry experience.

Potential Mitigations

• It is beneficial to have a business advisor help you research the history of the predecessor companies and the circumstances of the acquisition.
• Engaging with franchisees who have been with the system through the ownership change can provide valuable insights into its evolution.
• Your attorney can help you understand any liabilities or obligations that may have been carried over from the predecessor entities.

Explanation

This risk was not identified. The Color Me Mine concept has been in operation since 1996, demonstrating long-term market presence and consumer demand. This extensive history suggests the paint-your-own pottery studio is a stable business model rather than a short-term or fleeting fad.

Potential Mitigations

• A business advisor can help you research the long-term trends in the arts, crafts, and experiential retail industries to assess future market viability.
• Discuss the brand's evolution and strategies for staying relevant with long-standing franchisees.
• Your financial advisor can help you assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. The management team detailed in Item 2 possesses extensive and relevant experience. Many executives have long histories with the Color Me Mine system, its parent company, or as multi-unit franchisees themselves, indicating a deep understanding of the business operations from multiple perspectives.

Potential Mitigations

• Even with an experienced team, it's wise to research the recent performance of the franchise system under the current leadership with a business advisor.
• Engaging with franchisees about their direct experiences with the management team can offer insight into their operational effectiveness and support.
• Your attorney can help you verify the backgrounds and track records of key executives.

Explanation

This risk was not identified. The ownership structure detailed in Item 1 and Item 2 does not indicate control by a private equity firm. The parent company, Twist Brands LLC, appears to be an operator of similar franchise concepts led by individuals with direct industry experience, not a financial buyer.

Potential Mitigations

• Understanding the franchisor's ownership structure and long-term strategy is a valuable discussion to have with your business advisor.
• Your attorney should confirm the corporate structure and identify the ultimate decision-makers within the parent company.
• Asking current franchisees about any recent changes in philosophy or operational focus can provide clues about ownership's priorities.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the parent company, Twist Brands LLC. Since the franchisor entity itself, Color Me Mine LLC, demonstrates strong financial health in its audited statements, the financials of the parent company are not required for disclosure and their absence is not a risk indicator.

Potential Mitigations

• An attorney should review Item 1 and any related exhibits to fully understand the relationship and obligations between the franchisor and its parent.
• Confirming with an accountant that the franchisor entity is sufficiently capitalized on its own is a key step.
• Inquire with existing franchisees about the role the parent company plays in day-to-day support and operations.

Explanation

This risk was not identified. The FDD discloses the franchisor's predecessors and provides their history. There are no negative historical issues, such as litigation or bankruptcy, disclosed in Items 3 and 4 related to these predecessors. The disclosure appears to be transparent and complete.

Potential Mitigations

• Engaging a business advisor to research the business reputation of predecessor companies can provide additional context.
• Your attorney should review the acquisition documents if available to understand what liabilities, if any, were assumed by the current franchisor.
• Speaking with long-term franchisees who operated under the predecessor can offer valuable historical perspective.

Explanation

This risk was not identified. Item 3 of the FDD explicitly states that there is no litigation that requires disclosure. This absence of significant legal disputes, particularly with franchisees, is a positive indicator of the system's health and the franchisor's relationship with its operators.

Potential Mitigations

• An attorney can still conduct a public records search to ensure no undisclosed litigation exists.
• Asking current and former franchisees about any past disputes, even those not rising to the level of disclosed litigation, can be insightful.
• Your business advisor can help you understand that a clean litigation history is a good sign but not a guarantee of future harmony.