Explanation

This risk was not identified in the FDD package. High franchisee turnover, a key indicator of systemic problems like unprofitability or poor support, can be seen in FDD Item 20. A high number of terminations, non-renewals, or stores ceasing operations relative to the system's size would be a significant red flag. The data for DDSmatch does not indicate this is an issue.

Potential Mitigations

• It is still wise to have your accountant help you analyze the tables in Item 20 to calculate the actual turnover rate over the last three years.
• A business advisor can help you compare the system's turnover rate to available industry benchmarks for context.
• You should contact a broad sample of current and former franchisees from the list in Exhibit G to discuss their satisfaction and reasons for leaving.

Explanation

This risk was not identified. The FDD's Item 20 data shows steady, but not explosive, growth, from 33 to 43 franchised outlets over the past two years. While the franchisor has some financial weaknesses as noted in its financials, the growth rate does not appear to be outpacing its operational structure at a level that would typically raise concerns about the system's ability to provide adequate franchisee support.

Potential Mitigations

• A business advisor can help you question the franchisor about their plans to scale support systems to match future growth.
• Asking a range of existing franchisees about the current quality and responsiveness of franchisor support is a valuable step.
• Your accountant can review the financial statements to assess if investments in support infrastructure are keeping pace with expansion.

Explanation

This risk was not identified. DDSmatch began offering franchises in May 2015 and has over 40 units, indicating it is an established system, not a startup. An unproven system would present higher risks due to a lack of a long-term track record, underdeveloped operational systems, and minimal brand recognition. While this franchise has some documented financial weaknesses, it is not an unproven concept.

Potential Mitigations

• For any franchise, it is wise to have a business advisor help you conduct due diligence on the management team's industry and franchising experience.
• Engaging with the earliest franchisees listed in Item 20 can provide insight into the system's evolution and maturity.
• Your accountant should always review the franchisor's capitalization and financial history, regardless of the system's age.

Explanation

This risk does not appear to be present. The business model, dental practice brokerage, serves a consistent need within the professional dental industry. This is not a concept tied to a fleeting consumer trend. A fad business carries the risk that demand could evaporate, leaving you with a worthless investment and ongoing contractual obligations long after public interest has moved on.

Potential Mitigations

• Engaging a business advisor to research the long-term demand and competitive landscape for dental practice brokerage services is recommended.
• It's prudent to assess the business model's resilience to economic downturns with your financial advisor.
• You should always question the franchisor about their strategies for innovation and staying relevant within their industry.

Explanation

This risk does not appear to be a major concern. The President, Thad Miller, founded the original DDSmatch business in 2009 and began franchising in 2015, indicating significant experience in both the industry and in franchising. Inexperienced management can be a major risk, as it may lead to flawed strategies, weak support systems, and a higher potential for system-wide problems, but that does not appear to be the case here.

Potential Mitigations

• You should still review the backgrounds of all key executives listed in Item 2 with your business advisor.
• It is beneficial to ask existing franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you understand the stability of the management team and any recent key personnel changes.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose ownership by a private equity firm. Such ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the system, potentially leading to increased fees, reduced support, or a quick sale of the franchise system to another entity.

Potential Mitigations

• It is always prudent to ask your attorney to verify the franchisor's ownership structure and identify the ultimate controlling parties.
• If a franchise is PE-owned, a business advisor can help research the firm's track record with other franchise concepts.
• You should ask existing franchisees about any changes in system philosophy or support levels following an ownership change.

Explanation

This risk was not identified. Item 1 of the FDD does not indicate the existence of a parent company. Failure to disclose a parent or provide its financial statements when required can obscure the true financial backing and stability of the franchisor, which could expose you to risks if the franchisor is a thinly capitalized subsidiary dependent on its parent.

Potential Mitigations

• Your attorney should always verify the franchisor's corporate structure as disclosed in Item 1.
• If a parent company exists and provides guarantees, your accountant should ensure the parent's financial statements are provided and reviewed.
• Clarifying the legal and financial relationship between a franchisor and its parent is a key due diligence step for your attorney.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessors. If a franchisor had a predecessor, it would be important to review their history for any inherited issues, such as litigation or high franchisee turnover, which could indicate underlying problems with the business model or management that may still persist.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any disclosed predecessors and their operating history.
• If a predecessor exists, a business advisor can help you research their track record for any red flags.
• Asking long-term franchisees about their experiences under any previous ownership is a valuable due diligence step.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." The absence of a pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or misrepresentation, is a positive indicator. A history of such litigation could suggest systemic problems with the franchisor's practices or the viability of the franchise system.

Potential Mitigations

• It is still wise to have your attorney conduct an independent search for litigation involving the franchisor or its principals.
• You should ask current and former franchisees about their experiences and whether they are aware of any disputes within the system.
• A business advisor can help you assess if the level and type of any disclosed litigation is typical for a franchise system of this size and age.