Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide adequate support. It is crucial to assess if the franchisor's support infrastructure is scaling appropriately with its unit growth to ensure new and existing franchisees receive the assistance they need to succeed.

Potential Mitigations

• Questioning the franchisor about their plans for scaling support infrastructure to match unit growth can be a topic for discussion with your business advisor.
• Your accountant can help you review the franchisor's financials in Item 21 to assess if they have the resources to support growth.
• Speaking with existing franchisees about the current quality and responsiveness of franchisor support is a valuable due diligence step.

Explanation

This risk was not identified in the FDD package. The business is a traditional real estate brokerage, an established industry with a long history of consumer demand. While market conditions fluctuate, the core service is not based on a new or fleeting trend, reducing the risk that the business concept itself is a fad with limited long-term viability.

Potential Mitigations

• A business advisor can help you research the long-term market demand for real estate brokerage services in your specific local area.
• It is still prudent to evaluate the franchisor's plans for innovation and adaptation to stay competitive within the established industry.
• Your financial advisor can help you consider the business model's resilience to economic downturns, which are common in the real estate sector.

Explanation

The management team detailed in Item 2 appears to have extensive, long-term experience within the Counselor Realty system and the real estate industry. Many have been licensed agents, brokers, or managers with the affiliated company for decades. This deep, specific experience is a positive factor, suggesting a strong understanding of the business operations, though general business management of a franchising company has its own separate challenges.

Potential Mitigations

• It is still beneficial to speak with existing franchisees about their direct experiences with the management team's support and strategic direction.
• A business advisor can help you assess how the team's operational experience translates into effective franchise system management.
• Posing questions to the franchisor about their franchise-specific training and support systems is a useful step in your due diligence.

Explanation

This risk was not identified in the FDD package. Item 1 indicates Counselor is a wholly-owned subsidiary of Counselor Holding, Inc., but there is no disclosure of ownership by a private equity firm. Risks associated with PE ownership, such as a focus on short-term returns over franchisee health, do not appear to be present.

Potential Mitigations

• It is always good practice to ask your attorney to verify the corporate structure and ownership of the franchisor.
• A business advisor can help research the history of the parent company, Counselor Holding, Inc., for any past affiliations.
• Understanding the ownership philosophy is important regardless of who the owner is, so asking about long-term goals is a valid question for the franchisor.

Explanation

Item 1 clearly discloses the parent company, Counselor Holding, Inc. However, the parent company's financial statements are not provided in Item 21. While the franchisor itself provides audited financials, the lack of parent financials means you have an incomplete picture of the overall financial health of the consolidated entity, which provides administrative support to the franchisor. This presents a minor risk as the parent's stability could impact the franchisor.

Potential Mitigations

• Your accountant should review the provided franchisor financials and note any significant transactions with the parent company.
• It may be worthwhile for your attorney to ask the franchisor if the parent company guarantees any of the franchisor's obligations.
• A business advisor can help you assess the level of dependence the franchisor has on its parent for administrative and other support.

Explanation

This risk was not identified in the FDD package. Item 1 states that Counselor has no predecessors. This means the company's disclosed history in Items 3, 4, 20, and 21 represents the full operational history of the franchisor, without the complication of assessing inherited issues from a prior entity.

Potential Mitigations

• Your attorney should still confirm the corporate history to ensure no entities were acquired that should have been disclosed as predecessors.
• A business advisor can help you focus your due diligence on the direct track record of the current franchisor entity.
• The absence of predecessors simplifies the review of litigation and bankruptcy history with your legal counsel.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation required to be disclosed. The absence of a pattern of lawsuits filed by or against franchisees concerning fraud, misrepresentation, or other franchise relationship issues is a positive indicator and suggests a less contentious relationship between the franchisor and its franchisees.

Potential Mitigations

• Although no litigation is disclosed, your attorney can still conduct public record searches as part of thorough due diligence.
• Discussing any past informal disputes with current and former franchisees can provide insight into the franchisor's conflict resolution style.
• Your business advisor can help you assess the overall health of franchisee relationships through these conversations.