Explanation

This risk was not identified in the FDD package. Rapid growth can be a concern if it outpaces a franchisor's ability to provide adequate support to all units. A sudden surge in new outlets can strain training, site selection, and operational support resources, potentially diminishing the quality of service for all franchisees. Careful analysis of Item 20 data is needed to spot such trends.

Potential Mitigations

• Your accountant can help analyze growth trends in Item 20 to ensure they appear sustainable and are not straining franchisor resources.
• Engaging a business advisor can help you assess if the franchisor's support infrastructure is sufficient for its current size and growth rate.
• Posing questions to a range of franchisees, both new and established, can provide insight into the consistency and quality of support.

Explanation

This risk was not identified. The franchisor, Da Vi Nails Salon and Spa, L.L.C. (Da Vi Nails), was formed in 2010 and acquired the assets of a predecessor dating back to 2003. Management has extensive experience, with key personnel having been with the company or its predecessor since 2005. The system is mature, with approximately 387 operating franchises. Therefore, the risks associated with an unproven system or inexperienced management do not appear to be present.

Potential Mitigations

• It is still prudent to have your business advisor research the history and reputation of the predecessor companies mentioned in Item 1.
• A discussion with your attorney can confirm that the experience of the management team, as listed in Item 2, is relevant to this industry.
• Speaking with long-term franchisees can provide valuable perspective on the franchisor's evolution and consistency over the years.

Explanation

This risk was not identified in the FDD package. The business of providing nail and beauty salon services is a well-established and mature industry, not one based on a recent or fleeting trend. The franchisor and its predecessors have been operating this model for over two decades. The risk of the entire business concept being a short-lived fad appears to be low.

Potential Mitigations

• Your business advisor can help you research local market demand and competition to confirm the long-term viability of a nail salon in your area.
• Investigate local consumer trends with your marketing advisor to ensure the specific services offered align with current preferences.
• Discuss with current franchisees how their business has performed through various economic cycles.

Explanation

This risk was not identified in the FDD package. The key managers listed in Item 2, such as David Truong and Vi Truong Cao, have been with Da Vi Nails since its inception in 2010 and held similar roles with the predecessor company, Da-Vi International, since 2005. This indicates more than a decade of direct experience in operating this specific business and franchise system.

Potential Mitigations

• It is still beneficial to discuss the management team's reputation and effectiveness with current and former franchisees.
• Engaging a business advisor to research the professional backgrounds of the key executives can provide additional comfort.
• Your attorney should confirm that the experience described in Item 2 aligns with the support obligations outlined in Item 11.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that Da Vi Nails is owned by a private equity firm. The management appears to consist of the founding individuals who have been with the company long-term. Therefore, the specific risks associated with a private equity ownership model, such as a focus on short-term returns over system health, do not appear to be present.

Potential Mitigations

• Your attorney should verify the ownership structure of the franchisor LLC to confirm the absence of private equity or other institutional investors.
• It is always wise to ask the franchisor about any potential plans to sell the company in the near future.
• A business advisor can help you understand the potential implications if the company were to be sold to new ownership during your franchise term.

Explanation

This risk was not identified in the FDD package. Item 1 discloses an affiliate, Em Lash Beauty Supply, LLCs, but does not mention a parent company. The financial statements provided in Item 21 are for the franchisor entity itself. There is no indication that the franchisor is a thinly capitalized subsidiary of a larger, undisclosed parent entity whose financials would be material to your investment decision.

Potential Mitigations

• Your attorney can confirm the corporate structure and ensure there are no undisclosed parent companies with controlling interests.
• It's prudent for your accountant to analyze the relationship with the disclosed affiliate, Em Lash Beauty Supply, LLCs, and its financial impact.
• Always ask the franchisor to clarify its full corporate structure and any ownership interests held by other entities.

Explanation

This risk was not identified. The FDD discloses predecessors, including Da-Vi International, and provides details of their history. The litigation history in Item 3 involves these predecessors, and Item 4 states no bankruptcy history for the franchisor or predecessors. While the litigation history itself is a risk, the disclosure of this history appears to be handled as required, rather than being an issue of non-disclosure or concealment of predecessor problems.

Potential Mitigations

• It is still advisable for your attorney to review the predecessor information in Items 1, 3, and 4 for any concerning details.
• Researching the predecessor companies online may reveal additional context about the system's history.
• Inquiring with long-term franchisees about their experiences under any predecessors can provide valuable insights.