Explanation

This risk was not identified. The audited financial statements for Creative World Schools Franchising Company, Inc. (CWSFC) show a history of profitability, positive and increasing net worth, and healthy cash flow. There are no indicators of financial instability, such as a going concern note from the auditor. This suggests the company has the financial resources to support its franchisees and meet its obligations.

Potential Mitigations

• It is still prudent for your accountant to conduct a thorough review of the franchisor's complete, multi-year audited financial statements and footnotes.
• A discussion with your financial advisor can help you understand the franchisor's revenue sources, comparing reliance on royalties versus initial fees.
• Your attorney can verify if any state has required the franchisor to post a bond or escrow due to financial standing.

Explanation

The risk of high franchisee turnover appears low. Item 20 data for the past three years shows only one franchised outlet ceased operations, with no terminations or non-renewals reported during that period. The total number of franchised units has remained stable with a slight increase. This stability suggests a relatively healthy and satisfied franchisee base and a sustainable business model.

Potential Mitigations

• You should still contact a diverse selection of current and former franchisees from the list in Item 20 to discuss their experiences.
• Analyzing the turnover data with your accountant can provide a clearer picture of the system's long-term health.
• Your attorney can help you ask targeted questions to the franchisor regarding the circumstances of the single unit that ceased operations.

Explanation

This risk was not identified. The data in Item 20 indicates that the franchise system is experiencing slow and stable growth, not rapid expansion. Over the last three years, the number of franchised outlets has shown a small net increase. This measured pace suggests the franchisor is not growing faster than its ability to provide necessary support and maintain quality control across the system.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's support infrastructure is appropriate for its current size and projected growth.
• It remains valuable to ask current franchisees about the quality and timeliness of the support they receive from the corporate office.
• Your accountant can review the financials in Item 21 to confirm that spending on franchisee support is adequate.

Explanation

This risk was not identified. CWSFC began offering franchises in 2000 and has over two decades of experience. Item 2 shows that its management team has significant and long-term experience within the company and the early childhood education industry. The system is established, with over 20 franchised locations and audited financial statements, indicating it is not a new or unproven venture.

Potential Mitigations

• A review of the management team's specific franchising experience with your business advisor is still a useful step.
• Engaging with a range of franchisees, from newer to more established ones, can provide insight into the system's evolution and support quality.
• Your attorney can confirm the franchisor's history and standing through public records.

Explanation

This risk was not identified. The franchise operates in the early childhood education and childcare industry. This is a well-established sector driven by fundamental societal needs, not a short-term trend or fad. The business model has demonstrated longevity and is not dependent on novelty for its market appeal, suggesting a stable long-term demand for its services.

Potential Mitigations

• Your business advisor can help you research the long-term outlook and competitive landscape for the childcare industry in your specific local market.
• It is wise to assess the brand's specific market position and how it differentiates itself from local competitors.
• A discussion with your financial advisor can help evaluate the business model's resilience to economic shifts.

Explanation

This risk was not identified. The biographical information in Item 2 indicates that the franchisor's key executives and management personnel have extensive and long-standing experience. Many have been with the company or its affiliates for over a decade and possess deep expertise in the childcare and education industry, suggesting a stable and knowledgeable leadership team.

Potential Mitigations

• Speaking with current franchisees can provide valuable firsthand accounts of their interactions with and support from the management team.
• Your business advisor can help you assess how the management team's skills align with the support you will need.
• A review of the information in Item 2 with your attorney can confirm the leadership's history and background.

Explanation

This risk was not identified. The disclosures in Items 1 and 2 do not indicate that CWSFC is owned or controlled by a private equity firm. The ownership appears to be stable and held by the individuals involved in the management of the company, suggesting that operational decisions are likely focused on the long-term health of the brand rather than short-term investor returns.

Potential Mitigations

• Your attorney can help you verify the corporate ownership structure to confirm the absence of private equity involvement.
• Asking the franchisor directly about their long-term vision for the brand can provide insight into their strategic priorities.
• A business advisor can help you understand the typical impacts of different ownership structures on franchise systems.

Explanation

This risk was not identified. The FDD does not disclose the existence of a parent company. CWSFC is presented as the primary entity, and its own audited financial statements are provided in Item 21. All affiliated companies appear to be properly disclosed in Item 1. Therefore, there is no apparent risk of financial instability being hidden within an undisclosed parent entity.

Potential Mitigations

• Your attorney can verify the corporate structure and confirm the absence of a parent company through public record searches.
• A thorough review of the affiliate relationships described in Item 1 with your accountant is still recommended.
• Asking the franchisor to confirm its ownership structure in writing provides an additional layer of assurance.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states, "We have no parent or predecessors." This indicates the current franchisor is the original entity that developed the system, so there is no hidden negative history associated with a prior owner or related entity that you would need to investigate separately.

Potential Mitigations

• Your attorney can independently verify the corporate history of the franchisor to confirm the accuracy of this statement.
• Reviewing the company's incorporation date in Item 1 can provide additional context on its history.
• Asking long-term franchisees about the history of the system can offer further confirmation.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This absence of reported litigation against the franchisor, particularly from franchisees alleging issues like fraud or misrepresentation, is a positive indicator of the health of the franchise relationship and the system's operational integrity.

Potential Mitigations

• It is still a good practice to ask current and former franchisees about their experiences and whether they have had disputes with the franchisor.
• Your attorney can conduct a public records search for litigation involving the franchisor as an extra layer of due diligence.
• Understanding the dispute resolution process in the Franchise Agreement with your attorney is important for any future issues.