Explanation

This risk was not identified in the FDD package. Item 20 data shows the franchise system is very new and has not yet experienced any terminations, non-renewals, or other cessations of business. High franchisee turnover is a critical red flag in established systems, often indicating problems with profitability, support, or the business model itself. A stable, growing system is generally a positive sign.

Potential Mitigations

• Engaging a business advisor to review system growth trends in future FDDs is a sound practice.
• It is wise to ask current franchisees about their satisfaction and intentions to renew during your due diligence calls.
• Your attorney can help you understand the renewal terms outlined in Item 17 of the FDD.

Explanation

This risk was not identified in the FDD package. Item 20 data shows the system is in its infancy, with only a few franchises opened. While growth is the goal, excessively rapid expansion can strain a franchisor's ability to provide adequate support. Monitoring the ratio of support staff to franchisees over time is a key aspect of ongoing due diligence.

Potential Mitigations

• A discussion with your business advisor can help you evaluate a franchisor's plans for scaling its support systems.
• When speaking with existing franchisees, asking about the quality and responsiveness of franchisor support is a valuable inquiry.
• Your accountant can review future financial statements to see if the franchisor is reinvesting in support infrastructure.

Explanation

The boutique fitness market, including Pilates, is described as highly competitive. While Pilates has been popular for many years, the long-term viability of any specific brand within this crowded space can be a concern. You should consider whether the brand has unique differentiators that give it staying power beyond current fitness trends. Your success may depend on the brand's ability to maintain relevance over the full term of your agreement.

Potential Mitigations

• Your business advisor can help you research the long-term trends in the boutique fitness market and assess this brand's specific competitive advantages.
• Discuss the franchisor's strategies for innovation and brand evolution with their management team.
• When speaking with current franchisees, inquire about their local market competition and what makes the brand stand out.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the company is owned by its principal, not by a private equity firm. PE ownership can sometimes introduce a focus on short-term profitability or a quick sale of the brand, which may not align with the long-term interests of franchisees. This risk does not appear to be present here.

Potential Mitigations

• Your attorney should always confirm the ownership structure disclosed in Item 1 of the FDD.
• Understanding the franchisor's long-term vision for the brand is a worthwhile discussion to have with management.
• Asking a business advisor about the pros and cons of different franchise ownership structures can be informative.

Explanation

This risk was not identified in the FDD package. The franchisor appears to be the primary entity, and it discloses its relationship with its affiliate, LC Fitness, LLC. There is no indication of a separate, undisclosed parent company that controls the franchisor. A parent's financial health can be material, and its non-disclosure is a risk, but that does not seem to be the case here.

Potential Mitigations

• Your accountant can help you analyze the financial relationship between the franchisor and any affiliates disclosed in Item 1 and Item 21.
• If a franchisor is a newly formed subsidiary, an attorney should advise on whether parent company financials should have been provided.
• Verifying corporate records is a step an attorney can take to confirm the disclosed ownership structure.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessors from which The Daily Pilates acquired its assets or brand. When predecessors exist, it's important to investigate their history for any signs of trouble, such as litigation or high franchisee failure rates, that could carry over to the new entity. That risk is not present here.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors.
• If a predecessor is listed, asking a business advisor to help you research its history is a prudent step.
• In due diligence calls, asking long-tenured franchisees about their experience under any prior ownership can provide valuable context.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or by the franchisor against franchisees for minor issues, can be a major red flag indicating systemic problems. The absence of such litigation is a positive indicator, though expected for a system this new.

Potential Mitigations

• Your attorney should always review Item 3 carefully and can conduct independent searches for litigation not yet disclosed.
• It's a good practice to ask current franchisees about any disputes they are aware of within the system.
• Understanding the dispute resolution process in the Franchise Agreement is important, a task for which your attorney can provide assistance.