Explanation

This risk was not identified. The franchisor's audited financial statements for 2021-2023 show consistent profitability, positive and growing member's equity, and substantial cash reserves. There are no signs of financial instability, such as a 'going concern' note from the auditors. A strong financial position suggests the franchisor has the resources to support its franchisees and grow the brand, which is a positive factor for a prospective franchisee's investment security.

Potential Mitigations

• Your accountant should still review the financial statements, including footnotes, to understand the franchisor's financial structure and revenue sources.
• A business advisor can help you assess if the franchisor's financial health aligns with its growth plans and support commitments.
• Ask your attorney about any state-required financial assurances, like bonds or fee deferrals, which can offer protection even with healthy financials.

Explanation

This risk was not identified. The franchise operates in the property damage restoration industry, which is a need-based service rather than a discretionary or trendy one. Demand for these services is driven by events like fires, floods, and storms, which are not subject to fads. Therefore, the business model appears to have long-term market sustainability and is not considered a fad business, which reduces the risk of a sudden decline in consumer demand.

Potential Mitigations

• Your business advisor can help you research the long-term outlook and competitive landscape for the property restoration industry in your local market.
• Engaging an accountant to model financial performance under various economic conditions can help assess the business's resilience.
• Consult with your attorney to understand any contractual obligations that would persist even if market demand were to change.

Explanation

This risk was not identified. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. The ownership structure appears to be a standard limited liability company without the involvement of institutional investors whose primary focus might be short-term returns over the long-term health of the franchise system. This can be a positive factor, suggesting a potentially more stable and franchisee-focused operational philosophy.

Potential Mitigations

• Your attorney should still confirm the ownership structure and verify there are no undisclosed controlling entities.
• A business advisor can help you research the background of the principal owners to understand their long-term vision for the brand.
• It is prudent to ask the franchisor about any future plans to sell the company.

Explanation

This risk was not identified. The franchisor discloses an affiliate, CGR Affiliate, and outlines its role, but there is no mention of a parent company that controls the franchisor. The franchisor entity, CORE Group Restoration Franchising, LLC, provides its own audited financial statements, and there is no indication that it is a thinly capitalized subsidiary dependent on an undisclosed parent. The corporate structure appears to be transparently disclosed in the FDD.

Potential Mitigations

• An attorney should review the FDD to confirm that all relevant affiliated entities and their roles are clearly disclosed.
• Your accountant can analyze the provided financial statements to ensure the franchisor appears to be a standalone, viable entity.
• Engage a business advisor to research the relationship between the franchisor and its disclosed affiliate to fully understand their interactions.

Explanation

This risk was not identified. FDD Item 1 does not disclose any predecessor entities from which the franchisor acquired its assets or that previously offered franchises for this system. This means the disclosed operational and financial history is that of the current franchisor entity, which avoids the risk of inheriting undisclosed historical problems from a prior owner. However, this also reinforces the fact that the franchisor has a limited operating history of its own.

Potential Mitigations

• Your attorney should verify the franchisor's formation documents to confirm its history and lack of predecessors.
• In discussions with the earliest franchisees, it may be useful to inquire about the origins of the business system.
• A business advisor can help you understand the implications of investing in a system without a long operational lineage.

Explanation

This risk was not identified. Item 3 of the FDD states that no litigation is required to be disclosed. This indicates the franchisor, its predecessors, and key personnel have not been involved in the types of material legal actions that require disclosure, such as those alleging fraud, misrepresentation, or franchise law violations. The absence of a pattern of litigation is a positive indicator of the franchisor's relationship with its franchisees and its business practices.

Potential Mitigations

• While the FDD is clean, you can have your attorney conduct an independent public records search for any litigation not meeting the threshold for disclosure.
• A thorough due diligence process should include asking current and former franchisees about any disputes they have had, even if they did not result in litigation.
• Your business advisor can help you assess the overall health of franchisee-franchisor relations within the system.