Explanation

The FDD’s franchise turnover tables for the past three years (2022-2024) do not show any franchisee terminations, non-renewals, or cessations of operation for other reasons. While the franchise system is relatively young, this low turnover rate is a positive indicator and suggests that existing franchisees are, at present, remaining with the system. This provides a notable counterpoint to the franchisor's disclosed financial weakness, although it does not eliminate that underlying risk.

Potential Mitigations

• It would be beneficial to ask current franchisees about their satisfaction levels and their perspective on the franchisor's support and financial stability.
• A business advisor can help you weigh the positive sign of low turnover against the negative indicator of the franchisor's financial weakness.
• Your attorney should confirm that the definitions used for turnover in Item 20 are standard and not misleading.

Explanation

This risk was not identified in the FDD Package. The medical spa industry, including services like cosmetic injectables, laser hair removal, and advanced skin care, is a well-established and growing sector of the economy rather than a temporary trend. This suggests a likelihood of sustained consumer demand. However, you should always assess the local market demand for these specific services and the strength of competitors in your area.

Potential Mitigations

• Engage a business advisor to research and validate the long-term market demand for medical spa services in your specific geographic area.
• It would be prudent to review market studies and demographic data to ensure the customer base can support the business model.
• Discuss the competitive landscape and potential for market saturation with a local marketing professional.

Explanation

This risk was not identified in the FDD Package. The management profiles in Item 2 indicate that key personnel have relevant experience in the medical spa industry and with the affiliated company dating back to 2013, with franchise-specific operational roles starting in 2018. This suggests the leadership team has a foundational understanding of both the industry and the franchise business model.

Potential Mitigations

• A business advisor can help you verify the backgrounds of key management personnel and assess their reputation within the franchise industry.
• When speaking with current franchisees, it's beneficial to ask about their direct experiences with the management team's competence and support.
• Your attorney might research if the key personnel have been involved in other franchise systems and what their track record was.

Explanation

This risk was not identified in the FDD Package. A review of Item 1 indicates the franchisor is a limited liability company and its parent is LazCoz LLC. There is no disclosure suggesting that the franchisor is owned or controlled by a private equity firm. Franchisees should be aware that a future sale to a private equity firm is always possible, which could change the operational philosophy of the franchisor.

Potential Mitigations

• Your attorney should review the 'Assignment' clause in the Franchise Agreement to understand the franchisor's rights to sell the system.
• It is wise to ask the franchisor about any long-term plans regarding the sale or recapitalization of the company.
• A business advisor can help you understand the typical changes that occur when a franchise system is acquired by private equity.

Explanation

This risk was not identified in the FDD Package. The franchisor discloses its parent company, LazCoz LLC, in Item 1. However, the parent company's financial statements are not provided, nor is a parent guarantee offered for the franchisor's obligations. Given the franchisor's disclosed financial weakness, the absence of a financial guarantee from the parent means you are relying solely on the financial resources of the subsidiary franchising entity.

Potential Mitigations

• Your accountant should evaluate the franchisor's standalone financials with the understanding that there is no disclosed financial backing from the parent entity.
• It would be beneficial for your attorney to inquire why a parent guarantee is not provided, especially in light of the franchisor's financial condition.
• A business advisor can help research the parent company to assess its overall stability, even without audited financials.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD does not disclose any predecessors for dermani MEDSPA® Franchising LLC. This indicates the current franchisor is the original entity that developed and began franchising the system. Therefore, there is no hidden history of past failures or issues under a prior company name to investigate for this specific franchise system.

Potential Mitigations

• Your attorney should confirm the corporate history disclosed in Item 1 through public records searches.
• Asking early franchisees about the history of the company can help verify the information provided in the FDD.
• A business advisor can help you understand the importance of predecessor history in evaluating more established franchise systems.

Explanation

This risk was not identified in the FDD Package. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates there is no recent or pending litigation against the franchisor involving claims of fraud, misrepresentation, or violations of franchise law, which is a positive factor. However, this does not cover disputes that have not resulted in formal litigation.

Potential Mitigations

• Your attorney can conduct an independent search of court records to verify the accuracy of the litigation disclosures.
• When speaking with current and former franchisees, it is wise to inquire about any disputes or disagreements they may have had with the franchisor.
• A business advisor can help you understand what types of litigation are common in the franchise industry.