Explanation

The audited financial statements for Complete Music, Inc. (Complete Music) appear stable. For the year ended December 31, 2024, the company reported positive net income and retained earnings, with current assets exceeding current liabilities. The auditor's report is unqualified and does not contain a 'going concern' note. Revenue is primarily derived from ongoing royalties rather than initial fees, which suggests a more sustainable business model. Therefore, this specific risk appears low.

Potential Mitigations

• An experienced franchise accountant should still conduct a thorough review of the financial statements, including all footnotes and cash flow statements, to form an independent opinion.
• Discuss the franchisor's financial health and capitalization with your financial advisor to understand their capacity to support the system long-term.
• Inquire with your business advisor about the franchisor's historical investment in technology and brand development as an indicator of financial strength.

Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide adequate support. Evaluating the pace of expansion against the franchisor's support infrastructure is a key piece of due diligence.

Potential Mitigations

• A discussion with your business advisor about the franchisor's growth plans versus their support capacity is advisable.
• Questioning existing franchisees about their perception of support quality as the system has grown can provide valuable insight.
• An accountant should review the franchisor's investments in support infrastructure relative to their growth in franchise sales.

Explanation

This risk is not present. Complete Music was founded in 1974 and began franchising in 1981, indicating a long operational history and a mature franchise system. Key management personnel also have significant tenure with the company. The risks associated with a new or unproven franchisor do not appear applicable here.

Potential Mitigations

• It is still prudent to have your business advisor assess how the franchisor has adapted its long-standing model to current market conditions.
• In discussions with long-term franchisees, ask about the system's evolution and management's effectiveness over time.
• Your attorney should verify that the long history doesn't include unresolved legacy issues.

Explanation

This risk was not identified. FDD Item 2 indicates that the key executives of Complete Music have substantial and long-term experience both in the mobile entertainment industry and in managing the franchise system. For instance, the President, Eric Maas, has been with the company since 2002. This extensive experience is generally a positive factor for system stability and support.

Potential Mitigations

• When speaking with franchisees, it is still worthwhile to ask about the effectiveness and accessibility of the current management team.
• A business advisor can help you assess if the management team's experience is well-suited for future market challenges.
• Your attorney can help you confirm the backgrounds of the key individuals listed in Item 2.

Explanation

This risk was not identified in the FDD package. The documents do not indicate that Complete Music is owned or controlled by a private equity firm. The risks often associated with private equity ownership, such as a focus on short-term returns over long-term system health, do not appear to be present here.

Potential Mitigations

• To confirm the ownership structure, you can have your attorney review corporate records.
• Consulting with a business advisor to understand the current ownership's philosophy and long-term goals is a good practice for any franchise.
• Ask the franchisor directly about any potential plans to sell the company in the future.

Explanation

This risk was not identified in the FDD package. Complete Music does not appear to be a subsidiary of a larger parent company, and no parent company is mentioned in Item 1. The franchisor provides its own audited financial statements in Item 21. Therefore, the risk of hidden financial weaknesses from an undisclosed parent company is not apparent.

Potential Mitigations

• Your attorney can verify the corporate structure of the franchisor to confirm it is a standalone entity.
• An accountant should review the provided financials to ensure they are complete and stand on their own.
• During due diligence, confirm with the franchisor that there are no undisclosed parent companies or guarantors.

Explanation

This risk was not identified in the FDD package. Item 1 states that Complete Music has no predecessors required to be disclosed. Therefore, the risks associated with an incomplete or negative history from a prior entity that owned the system are not applicable here.

Potential Mitigations

• It remains a good practice for your attorney to confirm the franchisor's corporate history through public records.
• When speaking with long-tenured franchisees, you can ask about the history of the brand and any prior ownership structures.
• A business advisor can help research the brand's history to ensure no predecessors have been omitted.