Explanation

This risk was not identified. CC's growth, as shown in Item 20, appears to be steady rather than excessively rapid. However, in any franchise system, it is important to ensure the franchisor maintains sufficient infrastructure and support staff to adequately serve all franchisees as the system expands. Unchecked growth can strain resources, potentially diminishing the quality of support for everyone.

Potential Mitigations

• A business advisor can help you evaluate whether the franchisor’s support systems seem adequate for its current size and projected growth.
• Discuss the franchisor's plans for scaling its support infrastructure with its management team.
• Your attorney should review the support commitments outlined in the Franchise Agreement.

Explanation

This risk was not identified. The franchise system has been in operation for many years, with the predecessor starting in 2003 and the current franchisor operating since 2014. With over 100 outlets, the system is established. For any franchise, however, a prospective owner should still investigate the brand's current market position and long-term viability.

Potential Mitigations

• A discussion with your business advisor can help you assess the long-term viability and market position of any established brand.
• It is beneficial to review the franchisor’s recent financial performance with an accountant.
• Legal counsel should be consulted to understand all contractual obligations.

Explanation

This risk was not identified. Providing haircuts for children is a long-standing, need-based service industry rather than a business based on a temporary trend. The system has been operating for over two decades, indicating sustained consumer demand. Nevertheless, understanding local competition is crucial for any service business.

Potential Mitigations

• A business advisor can help you analyze the local market and competitive landscape for children's services.
• It is wise to develop a detailed business plan with your accountant that accounts for local competition.
• Legal counsel should review all contractual terms related to your business operations.

Explanation

This risk was not identified. The key executives listed in Item 2 have substantial experience with the Cookie Cutters brand, with some involved since 2014 or earlier. This long tenure suggests a deep understanding of the business. For any franchise investment, it is still valuable to understand the depth and breadth of the entire support team beyond the top executives.

Potential Mitigations

• When speaking with the franchisor, inquire about the experience of the broader support team you will be interacting with day-to-day.
• A business advisor can help you evaluate the adequacy of the management team's experience.
• Reviewing the training and support commitments in Item 11 with your attorney is always recommended.

Explanation

This risk was not identified in the FDD. Item 1 suggests the franchisor is privately owned by its management, not a private equity firm. Generally, private equity ownership can introduce risks related to prioritizing short-term returns over the long-term health of the system. This does not appear to be a factor here based on the disclosures.

Potential Mitigations

• Your attorney should always confirm the ownership structure disclosed in Item 1.
• It is useful to ask the franchisor about their long-term vision for the brand during due diligence calls.
• A business advisor can help you understand the implications of different ownership structures.

Explanation

This risk was not identified. Item 1 clearly states that the franchisor does not have a parent company. In cases where a franchisor is a subsidiary, the financial health of the parent company can be a critical factor, and its non-disclosure would be a concern. That risk does not appear to be present in this FDD package.

Potential Mitigations

• An attorney can help you verify the corporate structure of the franchisor.
• It's always prudent to have an accountant review the provided financial statements for any notes related to guarantees or support from other entities.
• A business advisor can help interpret the overall organizational structure.

Explanation

This risk was not identified. Item 1 discloses a predecessor from whom the current franchisor purchased the system in 2014. However, no adverse information such as litigation or bankruptcy is disclosed regarding this predecessor in Items 3 and 4. When a predecessor exists, it is important to check for any inherited issues or negative history.

Potential Mitigations

• Your attorney can review disclosures related to any predecessor.
• When possible, a business advisor can help you research the history and reputation of a predecessor entity.
• Speaking with long-tenured franchisees about their experience under previous ownership can provide valuable context.

Explanation

This risk was not identified, as Item 3 states there is no litigation that requires disclosure. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. The absence of such disclosures is a positive sign, though it doesn't preclude the existence of non-material disputes.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• It is beneficial to conduct independent online searches for any news or discussions of legal disputes involving the franchisor.
• Speaking with current and former franchisees can sometimes reveal information about disputes that did not rise to the level of required disclosure.