Explanation

This risk was not identified in the FDD package. The Item 20 tables show no franchisee terminations, non-renewals, or cessations for 2022-2024. However, the franchise system is very new, having only started franchising in 2022. A history of high turnover can be a significant red flag indicating systemic problems, so this is an area to monitor as the system matures.

Potential Mitigations

• It is still crucial to contact a broad sample of current franchisees from the list in Exhibit C to discuss their satisfaction and profitability.
• With your business advisor, carefully analyze the rapid growth trends shown in Item 20 to assess if the support system can keep pace.
• Your attorney can help you formulate questions for the franchisor about their strategies for franchisee success and retention.

Explanation

This risk was not identified. The business, specializing in the restoration of personal property after events like floods and fires, operates in a well-established and essential industry. The demand for these services is driven by unfortunate events rather than fleeting consumer trends, suggesting the business concept is not a fad and has long-term market viability.

Potential Mitigations

• Your business advisor can still help you research the specific competitive landscape for restoration services in your target market.
• Discuss the franchisor's plans for innovation and staying competitive within the established restoration industry.
• An accountant can assist in modeling the financial impact of local competition on your business projections.

Explanation

While CRS has only been franchising since 2022, its key executives, as described in Item 2, have substantial prior experience in the content restoration industry through affiliated and predecessor companies like Duckstein Contracting. This extensive industry-specific operational experience may mitigate some of the risks typically associated with a new franchisor's management team. The risk is considered low because the core business knowledge appears to be present, though franchise system management experience is new.

Potential Mitigations

• It is prudent to discuss the management team's specific franchising philosophy and support structure with them directly.
• A business advisor can help you assess how well the management's industry experience has been translated into the franchise system's manuals and training.
• In your calls to other franchisees, inquire about their direct experiences with the accessibility and quality of management's support.

Explanation

This risk was not identified in the FDD. Item 1, which describes the franchisor and any parent or affiliate companies, does not indicate that CRS is owned or controlled by a private equity firm. The ownership structure appears to be held by the founding members.

Potential Mitigations

• It is good practice to ask the franchisor about any potential plans for a future sale of the company.
• Your attorney can review the assignment clause in the Franchise Agreement to understand your rights if the franchisor is sold in the future.
• A business advisor can explain the typical impacts of private equity ownership on a franchise system for your general knowledge.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose a parent company for the franchisor, CRS Franchising, LLC. The financial statements in Item 21 are for the franchisor entity itself and do not reference a parent. Therefore, there are no concerns related to a non-disclosed parent or missing parent financials.

Potential Mitigations

• As a matter of due diligence, your attorney can conduct a corporate records search to confirm the ownership structure of the franchisor.
• Your accountant should confirm that the provided financials are for the correct legal entity offering you the franchise.
• Always ensure you understand the complete corporate structure of the entity you are contracting with by seeking clarity from your business advisor.

Explanation

This risk was not identified. Item 1 mentions a predecessor business, Duckstein Contracting Inc., where the management team gained experience. However, the FDD does not disclose any negative history associated with this or any other predecessor, such as relevant litigation in Item 3 or bankruptcies in Item 4. The transition to the current company appears straightforward.

Potential Mitigations

• You can still perform independent online searches for the predecessor company and its principals to look for any publicly available information.
• Asking long-tenured employees or contacts in the industry about the predecessor's reputation could provide additional context.
• Your attorney can review the asset purchase history, if available, between the predecessor and the current franchisor.

Explanation

This risk was not identified in the FDD. Item 3, which requires the disclosure of material litigation against the franchisor, states that no such litigation exists. The absence of litigation, especially claims of fraud or misrepresentation from other franchisees, is a positive indicator, though it should be noted that the system is very new.

Potential Mitigations

• Your attorney can conduct an independent search of court records to verify the franchisor's litigation disclosures.
• It is still important to ask current franchisees about any disputes they may be aware of, even if they haven't resulted in formal litigation.
• Understanding the dispute resolution process in the Franchise Agreement is critical, and your attorney should explain it thoroughly.