Explanation

The franchisor's financials show its core business is profitable. However, CK Franchising, Inc. (CKFI) is divesting its company-owned operations, which resulted in a significant reported loss from discontinued operations in 2024. While the company appears solvent, this major strategic shift and a large dividend payment noted in the financial statements warrant a careful review of the company's long-term financial strategy and stability.

Potential Mitigations

• A franchise accountant should carefully analyze the audited financial statements, including footnotes regarding discontinued operations and large equity distributions.
• It is wise to discuss the franchisor's long-term strategic and financial plans with your business advisor, particularly concerning the divestiture of company-owned units.
• Legal counsel can help you understand any disclosed financial risks and their potential implications for the franchisor's ability to fulfill its contractual obligations.

Explanation

This risk was not identified in the provided disclosure documents. The franchisee turnover rates disclosed in Item 20 for the past three fiscal years appear to be relatively low. Low turnover can be an indicator of franchisee satisfaction and a healthy franchise system, though it does not guarantee your individual success.

Potential Mitigations

• Your business advisor can help you analyze the three-year trend data in Item 20 to confirm turnover rates are not a concern.
• It is always a good practice to ask a significant number of current and former franchisees about their experiences and satisfaction with the system.
• A franchise attorney can explain how high turnover, if present in other systems, can signal underlying problems like unprofitability or poor support.

Explanation

The FDD does not indicate excessively rapid growth from new, inexperienced franchisees. Item 20 shows a net increase of 49 franchised units in 2024, but footnotes clarify this is primarily due to the re-franchising of 58 previously company-owned locations. This represents a strategic shift rather than explosive organic growth, posing integration challenges rather than risks associated with outpacing support infrastructure.

Potential Mitigations

• In discussions with existing franchisees, ask about the quality and timeliness of franchisor support, particularly how it has handled the integration of former corporate units.
• A business advisor can help you assess if the franchisor's support structure, as detailed in Item 11, seems adequate for the current system size.
• Your accountant can review the franchisor's spending on franchisee support relative to its royalty income to gauge its commitment.

Explanation

This risk is not present. CKFI has been franchising since March 1999, demonstrating a long operational history. The management team described in Item 2 possesses extensive experience in the home care and franchising industries. This suggests the franchise system is well-established and not new or unproven, which is generally a positive factor for prospective franchisees.

Potential Mitigations

• You should still review the management biographies in Item 2 with your business advisor to feel comfortable with the team's background.
• Talking to long-term franchisees can provide insight into how the system has evolved and been managed over time.
• An attorney can confirm that the business history disclosed in Item 1 aligns with a mature and stable franchise system.

Explanation

This risk appears low. The in-home senior care industry is supported by strong demographic trends, with a large and growing population of seniors needing assistance. This suggests a sustained, long-term market demand for the core services offered by CKFI, rather than a business model based on a temporary or fleeting fad.

Potential Mitigations

• Engage a business advisor to conduct independent research on the long-term outlook for the in-home senior care market in your specific geographic area.
• Discuss the competitive landscape with current franchisees to understand how the brand maintains its relevance and market share.
• Review the franchisor's plans for service innovation in Item 11 with your business advisor to assess its strategy for long-term adaptation.

Explanation

This risk was not identified. The executive biographies provided in Item 2 of the FDD indicate that the franchisor's management team has substantial experience in both the in-home care industry and in managing franchise systems. Many executives have long tenures with CKFI or similar companies, which is a positive indicator of leadership stability and expertise.

Potential Mitigations

• It is still worthwhile to review the specific backgrounds of the management team in Item 2 with a business advisor.
• When speaking with current franchisees, inquire about their direct experiences with the leadership team and their effectiveness.
• An attorney can help you understand the roles of the key personnel and how their experience may impact the franchise relationship.

Explanation

This risk was not identified. The FDD provides a clear description of the corporate structure in Item 1, identifying the parent entities up to The Halifax Group. The financial statements provided in Exhibit C are for the combined entity, CK Franchising, Inc. and its subsidiaries, and appear to comply with disclosure requirements. No separate parent company guarantee is mentioned or seems required.

Potential Mitigations

• A franchise attorney can confirm that the ownership structure disclosed in Item 1 is clear and complies with franchise regulations.
• An accountant can verify that the provided financial statements in Item 21 are sufficient for assessing the entity you are contracting with.
• When performing due diligence, a business advisor can help you understand the roles of the various parent entities mentioned.

Explanation

This risk was not identified in the FDD. Item 1 clearly states, "We have no predecessor (a company from which we received a majority of our assets)." This indicates that the current franchising entity, CKFI, has not acquired the system from a prior company, which simplifies the due diligence process as there is no hidden history of predecessor litigation, bankruptcy, or franchisee turnover to investigate.

Potential Mitigations

• Your franchise attorney can confirm the FDD's statement regarding the absence of a predecessor.
• Discussions with long-term franchisees can help verify the historical continuity of the franchisor's management and ownership.
• A business advisor can affirm that the lack of a predecessor simplifies the process of evaluating system history and stability.