Explanation

This risk was not identified in the FDD package. The franchise system has experienced slow growth and a recent net decrease in franchised units, not the rapid expansion that would trigger this concern. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is a neutral factor. However, the lack of growth presents its own set of challenges.

Potential Mitigations

• A business advisor can help you assess the risks and benefits associated with a slow-growing or contracting franchise system.
• It is wise to discuss the system's growth strategy and support capacity with both the franchisor and current franchisees.
• Your accountant should review the franchisor's financial statements to determine if they have adequate resources to support future growth initiatives.

Explanation

This risk does not appear to be present. The business model, focused on deer repellent and damage control services, addresses a persistent problem in many geographic areas rather than a fleeting trend. The long operational history of an affiliate business (since 1981) suggests a sustained market demand for similar landscaping services. A fad business can be risky as consumer interest may quickly disappear, leaving you with a worthless investment.

Potential Mitigations

• Engage a business advisor to research the long-term stability and demand for niche pest and animal control services in your specific market.
• An analysis of local competition and customer needs can help you determine the local market's viability.
• Discuss the franchisor's plans for service innovation and adaptation to changing environmental or market conditions.

Explanation

This risk was not identified in the FDD package. The franchisor appears to be owned and operated by its founders, not by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand, so its absence can be a positive indicator.

Potential Mitigations

• Your attorney can help you confirm the ownership structure of the franchisor through a review of corporate records.
• It is good practice to ask the franchisor about their long-term vision and any plans for future sale of the company.
• A business advisor can help you research the background of the individual owners and their history in business.

Explanation

This risk was not identified. Item 1 states the franchisor does not have a parent company, and the financial statements provided are for the franchisor entity itself. Failure to disclose a parent company that guarantees obligations or controls the system can hide significant financial or operational risks.

Potential Mitigations

• A business advisor can help you map out the complex web of affiliated companies disclosed in Item 1 to understand their relationships and roles.
• Your attorney can confirm the corporate structure and ensure there is no undisclosed controlling entity.
• During discussions with the franchisor, seek clarity on the role each affiliate plays in the franchise system.

Explanation

This risk is not present, as the franchisor states in Item 1 that it has no predecessors. A predecessor is a company from which the franchisor acquired the business, and a history of issues with a predecessor, such as litigation or high failure rates, could be a warning sign for the current system.

Potential Mitigations

• Your attorney can help you verify the franchisor's statement by reviewing corporate history and public records.
• Speaking with the earliest franchisees might provide insight into the system's origins.
• Researching the history of the key individuals in Item 2 can also provide context, which a business advisor could assist with.

Explanation

The franchisor discloses in Item 3 that there is no litigation that requires disclosure. A pattern of lawsuits, especially from franchisees alleging fraud or from the franchisor against franchisees for contract breaches, can be a major red flag indicating systemic problems. The absence of such litigation is a positive sign for this young system.

Potential Mitigations

• Even with no disclosed litigation, your attorney can conduct a public records search to confirm.
• Engaging with current and former franchisees is a good way to uncover any recent or undisclosed disputes.
• Maintain open communication and fulfill all contractual obligations to minimize the chance of future disputes.