Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system has been shrinking in recent years, not growing rapidly. While slow growth or shrinkage presents its own risks, the specific challenges associated with a franchisor's support systems being overwhelmed by rapid expansion do not appear to be a current concern for this system.

Potential Mitigations

• You should have your business advisor analyze the outlet data in Item 20 to understand the system's growth or decline trajectory over several years.
• An accountant can help assess if the franchisor's financial state supports healthy and sustainable growth for the system.
• Discuss the franchisor's future growth plans and the infrastructure to support it with your business advisor.

Explanation

This risk was not identified in the FDD package. Crown Trophy, Inc. reports in Item 1 that it was incorporated in 1985 and has been offering franchises since that time. The disclosed business experience of its key executives in Item 2 also indicates a long operational history. Therefore, the risks associated with an unproven or startup franchise system do not appear to be applicable here.

Potential Mitigations

• Your business advisor should still evaluate the system's history and track record by speaking with long-term franchisees.
• An accountant can review multi-year financial statements to confirm a history of stable operations.
• It's always wise for your attorney to review the franchisor's full history, including any predecessors, as detailed in Item 1.

Explanation

This risk was not identified in the FDD package. The business of selling trophies, plaques, and other recognition products, as described in Item 1, is a well-established and traditional retail and commercial service. The business model does not appear to be based on a recent, fleeting trend, suggesting that the risk of it being a short-lived fad is low.

Potential Mitigations

• A business advisor can help you research the long-term stability and market trends for the awards and recognition industry.
• You should assess how the business model is adapting to changes in technology and customer preferences.
• Your accountant can help you evaluate the business's resilience to economic cycles.

Explanation

This risk was not identified in the FDD package. Item 2 of the FDD details the business experience of the franchisor's principal officers. The key personnel listed have extensive, long-term experience with Crown Trophy and within the industry, with careers spanning over two decades in some cases. There is no indication of inexperienced management.

Potential Mitigations

• It's still valuable to verify the quality of management by speaking with current franchisees about their experiences with franchisor leadership.
• Your business advisor can help you assess if the management team's experience is relevant to the current market challenges.
• You should ask the franchisor about their strategies for future leadership and succession planning.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that Crown Trophy, Inc. is a corporation, and there is no disclosure of ownership by a private equity firm. The long tenure of the management team suggests stable, consistent ownership rather than the shorter-term investment horizon often associated with private equity.

Potential Mitigations

• Your attorney should still confirm the ownership structure of the franchisor entity.
• A conversation with your business advisor can help you understand the potential impacts of any future sale of the company.
• It is wise to ask the franchisor about any long-term plans for the sale or transfer of the company.

Explanation

This risk was not identified in the FDD package. The FDD discloses that Crown Trophy, Inc. has no parent company. It does disclose an affiliate, Crown Awards, Inc., and provides details about its business and relationship with the franchisor, which appears to be compliant with disclosure rules. There is no indication of a hidden or undisclosed parent entity.

Potential Mitigations

• Your attorney should confirm the corporate structure and the nature of the relationship with all disclosed affiliates.
• An accountant can help assess any financial interdependencies between the franchisor and its affiliates based on the provided disclosures.
• When speaking with the franchisor, you can ask for clarity on the operational relationship between the two entities.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD discloses a predecessor entity but provides no information suggesting a negative history associated with it. Item 3 (Litigation) and Item 4 (Bankruptcy) do not contain any adverse disclosures related to this predecessor. Therefore, there are no red flags indicating inherited issues from a past entity.

Potential Mitigations

• Your attorney should still carefully review any information related to predecessor entities in the FDD.
• If possible, researching the history of any predecessor company can provide additional context; your business advisor may assist.
• When speaking to long-tenured franchisees, asking about their experience under any prior ownership can be insightful.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD explicitly states that no litigation is required to be disclosed. This indicates an absence of recent, material legal disputes with franchisees, suppliers, or government agencies that would meet the criteria for disclosure, which is a positive sign regarding the franchisor's legal history.

Potential Mitigations

• It is still prudent to have your attorney perform an independent public records search for any litigation involving the franchisor.
• You should always ask current and former franchisees about any disputes they may have had with the franchisor, even if they didn't result in litigation.
• A business advisor can help you gauge the overall health of franchisor-franchisee relations through franchisee interviews.