Explanation

This risk was not identified. The data in Item 20 does not show a pattern of unusually rapid growth that might strain the franchisor's support systems. However, it is generally important to assess if a franchisor's growth outpaces its ability to provide adequate training and support, as this can negatively impact all franchisees in the system.

Potential Mitigations

• When evaluating any franchise, your business advisor can help assess whether the support infrastructure is adequate for its size and growth rate.
• An accountant should review the franchisor's financials to determine if they are investing sufficiently in support systems.
• Discussing the quality of support with a wide range of existing franchisees is a key due diligence step your attorney can guide you on.

Explanation

This risk is not present as the franchisor (NGT) and its parent company (CNA) have been operating and offering franchises for several decades, as disclosed in Item 1. An unproven system can be risky due to lack of established brand recognition, underdeveloped support, and a higher potential for failure.

Potential Mitigations

• When considering a new franchise system, engaging a business advisor to research the founders' industry and franchising experience is critical.
• For any young system, your accountant should carefully assess its capitalization and financial stability.
• Legal counsel should be sought to potentially negotiate more franchisee-favorable terms to offset the higher risk of an unproven concept.

Explanation

This risk was not identified. Commercial janitorial services represent a long-standing, essential business-to-business service industry rather than a temporary trend or fad. A fad-based business carries the risk that consumer interest will decline, potentially jeopardizing the long-term viability of your investment even if your contractual obligations continue.

Potential Mitigations

• A business advisor can help you independently research and assess the long-term market demand for any franchise's products or services.
• It is wise to have an accountant help you evaluate a business model's resilience to economic shifts and changing consumer tastes.
• Your attorney should review the franchise agreement to see if you are locked into a specific business model that cannot adapt to market changes.

Explanation

This specific risk was not found in the FDD package. The executive teams at both the franchisor and its parent company appear to have extensive, long-term experience in the janitorial and franchising industries, as detailed in Item 2. Inexperienced management could pose a risk through poor strategic decisions or inadequate franchisee support.

Potential Mitigations

• Before investing, having a business advisor help you vet the management team's experience in both the specific industry and franchising is crucial.
• Speaking with existing franchisees about the quality of management's support and strategic direction provides valuable insight.
• Your accountant can help assess if the franchisor's leadership team has a track record of financial success.

Explanation

This risk was not identified. The FDD clearly discloses the multi-layered corporate structure, including the immediate parent (CNA) and the ultimate private equity owner (Wellspring), and provides financial statements for both the franchisor and a consolidated parent entity. Omitting required parent financials can obscure a system's true financial health.

Potential Mitigations

• If a franchisor is a subsidiary, an attorney should verify that the parent company's role and financial information are properly disclosed.
• An accountant's review is necessary to ensure that if a parent company guarantees the franchisor's performance, its financials are provided and are sound.
• A business advisor can help you understand the potential impacts of a complex parent-subsidiary structure on your franchise.

Explanation

This specific risk does not appear to be present. The franchisor, NGT, does not list any predecessors. While its parent, CNA, has acquired many other companies over its long history, there is no indication that this is being used to obscure a troubled past. Inadequate disclosure about predecessors can hide historical problems like litigation or high failure rates.

Potential Mitigations

• Your attorney should always carefully review the predecessor history disclosed in Item 1 of any FDD.
• If a franchisor has predecessors, asking long-term franchisees about their experience under previous ownership can be insightful.
• A business advisor can assist in researching a predecessor's public reputation and history if concerns arise.