Explanation

This risk was not identified in the FDD package. Item 20 data does not show any franchisee terminations, non-renewals, or other cessations of business in the last three years. High turnover can be a major red flag indicating systemic problems such as lack of profitability or poor franchisor support, so its absence here is a positive sign for the small system, though the system's youth means the data is limited.

Potential Mitigations

• You should still discuss franchisee satisfaction and support with current franchisees listed in Item 20, as a business advisor would recommend.
• Understanding the reasons for any future turnover will be crucial, a topic to discuss with your franchise attorney.
• An accountant can help you monitor system health indicators beyond just the turnover tables in future FDDs.

Explanation

This risk was not identified. The franchise system is growing slowly, not rapidly. Item 20 shows the system grew from one to four total outlets over three years. While slow growth has its own risks, the specific challenges associated with rapid expansion, such as strained support systems and inconsistent quality control, do not appear to be a primary concern at this time based on the provided data.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's growth plans are sustainable and adequately supported.
• Discuss the franchisor’s capacity for providing support as the system grows with your franchise attorney.
• An accountant can analyze if the franchisor's financial model supports healthy, manageable growth.

Explanation

This risk was not identified in the FDD. The disclosure in Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. The business appears to be founder-led. This avoids the specific risks often associated with PE ownership, such as a focus on short-term returns over the long-term health of the brand and its franchisees.

Potential Mitigations

• Your attorney can confirm the ownership structure of the franchisor during the due diligence process.
• A business advisor can help you understand the implications of different ownership structures on a franchise system.
• Asking the franchisor about their long-term vision for the company can provide insight into their operational philosophy.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the franchisor's affiliated companies, Creatif LLC and Tvara LLC, and describes their roles in the system. There is no indication of any undisclosed parent company that controls the franchisor. The corporate structure appears to be transparent, which is a positive factor for disclosure.

Potential Mitigations

• Your attorney should still review the roles and relationships of the disclosed affiliates to understand their impact on your franchise.
• An accountant can analyze any financial transactions between the franchisor and its affiliates as disclosed in the financial statements.
• A business advisor can help you assess the operational dependencies on these affiliated companies.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. This means the company did not acquire its assets from a prior entity that operated a similar franchise system. You are therefore evaluating a system without a hidden history of prior litigation, bankruptcy, or franchisee turnover that might otherwise be associated with a predecessor.

Potential Mitigations

• Your franchise attorney can verify this statement as part of their due diligence.
• A business advisor can help you focus your due diligence on the franchisor's own limited operating history.
• Researching the history of the affiliate company, Creatif LLC, may provide additional context, which your accountant could assist with.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. This is a positive indicator, suggesting the franchisor is not currently involved in significant legal disputes with franchisees, suppliers, or regulators. A clean litigation history is particularly important for a young franchise system.

Potential Mitigations

• Your attorney can perform an independent search for litigation to confirm the FDD's disclosure.
• Asking current franchisees about any informal disputes or disagreements can provide additional insight, a task for your business advisor.
• Understanding the dispute resolution process in the Franchise Agreement is still crucial, which your attorney can explain.