Explanation

This risk was not identified. The audited financial statements provided by CP Franchising, LLC (Cruise Planners) in Exhibit B show a consistently profitable company with a strong balance sheet, including substantial cash reserves and a high positive net worth. The company's financial health appears robust, which suggests it has the resources to support its franchisees and continue investing in the system. This financial stability is a significant positive factor.

Potential Mitigations

• Even with strong financials, having your accountant review the statements, including all footnotes and the auditor’s report, is a prudent step.
• It is beneficial to ask your business advisor to help you understand the franchisor's primary revenue sources and their sustainability.
• Confirm with your attorney that the financial statements are audited and comply with all disclosure requirements.

Explanation

This risk was not identified. An analysis of the data in Item 20's tables indicates a franchisee churn rate of approximately 6% for 2024, combining terminations and non-renewals. This rate is not considered high for the franchise industry. The data suggests a relatively stable franchise system without an alarming number of franchisees leaving, which is a positive indicator for a prospective owner.

Potential Mitigations

• To gain qualitative insight, speaking with a number of current and former franchisees from the lists in Item 20 is highly recommended.
• You should discuss the provided turnover data with your business advisor to compare it against any available industry benchmarks.
• Your attorney can help you formulate insightful questions for the franchisor regarding the reasons behind any terminations.

Explanation

The system is expanding, as shown by a net increase of over 200 franchised outlets in 2024. While rapid growth can sometimes strain a franchisor's support systems, this does not appear to be a significant risk here. Cruise Planners has a long operational history and robust financials, suggesting it has the necessary infrastructure and resources to manage this steady growth effectively without compromising franchisee support.

Potential Mitigations

• Engaging with a range of existing franchisees, both new and tenured, can provide valuable insight into the current quality of franchisor support.
• It's a good practice to ask your business advisor about the franchisor's strategies for scaling their support systems.
• A review of the franchisor's staffing and resource allocation with your accountant can help confirm their capacity for growth.

Explanation

This risk was not identified in the FDD package. Cruise Planners has been franchising for many years and has a large, established system with thousands of outlets. This extensive history and scale indicate a proven, rather than a new or untested, business model. You would not be one of the first to invest in this concept.

Potential Mitigations

• Investigating the franchisor's history and the system's evolution with your business advisor is always a valuable exercise.
• It is useful to ask your attorney to verify the business's operating history as stated in the FDD.
• Speaking with long-term franchisees can offer perspective on how the system has matured over time.

Explanation

This risk was not identified. The franchise operates in the travel and cruise industry, which is a well-established and long-standing market. While subject to economic cycles and external events, the core business of selling travel is not considered a short-term fad. The business model is based on enduring consumer demand for vacations and travel services.

Potential Mitigations

• A business advisor can help you research the long-term outlook and competitive landscape of the travel agency industry.
• It is wise to assess the company's strategies for adapting to changes in travel trends with your financial advisor.
• Evaluating the brand's resilience through past economic downturns can provide insight into its long-term stability.

Explanation

This risk was not identified. Item 2 of the FDD details the backgrounds of the executive team. The key officers, including the CEO, have extensive, long-term experience within both the travel industry and the Cruise Planners franchise system specifically. This depth of experienced leadership is a significant positive factor, suggesting a strong understanding of the business and its operational needs.

Potential Mitigations

• Even with an experienced team, it is valuable to discuss the management's strategic vision with your business advisor.
• You can research the public reputation and track record of key executives as part of your due diligence.
• Asking current franchisees about their direct experiences with the leadership team provides important qualitative feedback.

Explanation

This risk was not identified in the FDD package. Based on the information in Item 1, Cruise Planners does not appear to be owned or controlled by a private equity firm. Ownership structure can be important, as PE firms may have different investment horizons and priorities than a founder-led or family-owned company, which could affect long-term strategy and franchisee support.

Potential Mitigations

• Your attorney can help you verify the corporate ownership structure disclosed in the FDD.
• It is still beneficial to ask your business advisor about the franchisor's long-term vision for the brand, regardless of ownership.
• Understanding who the ultimate decision-makers are is a key piece of due diligence.

Explanation

This risk was not identified. The franchisor discloses its parent company, Cruise Planners Holdings, Inc., in Item 1. However, it also states the parent does not guarantee the franchisor's performance. Because the franchisor (CP Franchising, LLC) provides its own strong, audited financial statements, the parent company's financials are not required for disclosure and their absence is not a red flag in this context.

Potential Mitigations

• Your attorney can confirm the relationship between the franchisor and its parent company as disclosed.
• It's wise for your accountant to verify that the franchisor entity itself is financially sound and not reliant on its parent.
• Understanding any operational dependencies between the parent and franchisor can be a useful discussion with your business advisor.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessor entities from which Cruise Planners acquired its assets or that previously operated the franchise system. This indicates the franchisor has a direct and continuous operating history under its current or previously disclosed names, which simplifies due diligence.

Potential Mitigations

• Your attorney can help confirm the corporate history as disclosed in Item 1.
• In any franchise review, it's good practice for a business advisor to help you research the brand's history.
• Asking long-tenured franchisees about the company's history can provide additional context.