Explanation

This risk was not identified in the FDD Package. A fad business is one tied to a fleeting trend, which can risk business failure when consumer interest declines. You should independently assess if the demand for remodeling and handyman services is sustainable in your local market over the long term, beyond any short-term housing or renovation trends.

Potential Mitigations

• It is wise to research long-term market trends for home remodeling and handyman services in your area with a business advisor.
• Evaluate the franchisor's plans for innovation and service line adaptation to ensure the business model can evolve with market changes.
• A financial advisor can help you assess the business model's resilience to economic shifts and its long-term viability.

Explanation

This risk was not identified in the FDD Package. The principals of the franchisor have extensive experience (since 2008 or 2009) operating businesses similar to the one being franchised through their affiliate companies. However, this experience is not in managing a franchise system, which involves different skills like training, support, and network management. Lack of specific franchising experience can present challenges in providing effective support to franchisees.

Potential Mitigations

• A business advisor can help you question the franchisor about their specific experience and strategy for managing a franchise network.
• Speaking with the first few franchisees is critical to gauge the quality of the support and training provided by the new franchise management team.
• Your attorney can help clarify what specific support commitments the franchisor is contractually obligated to provide.

Explanation

This risk was not identified in the FDD Package. Private equity ownership can introduce risks related to prioritizing short-term returns over long-term system health. The FDD indicates the franchisor is owned by its individual principals, not a private equity firm. However, you should remain aware that the system could be sold in the future.

Potential Mitigations

• Your attorney should review the assignment clause in the Franchise Agreement to understand your rights if the system is sold to any third party.
• It is prudent to ask the franchisor about any long-term plans regarding a potential sale of the company.
• A business advisor can help you understand the potential impacts of a future sale to a different type of ownership group.

Explanation

This risk was not identified in the FDD Package. The FDD does not indicate the existence of a parent company. The franchisor entity, Design Pro Enterprises, LLC, appears to be the primary entity, although its reliance on legally separate affiliates for its operating history and financial performance representation is a distinct risk.

Potential Mitigations

• Your attorney should confirm the corporate structure and the absence of any undisclosed parent or holding companies.
• An accountant can help you assess the financial stability of the disclosed franchisor entity on a standalone basis.
• A business advisor should help you understand the relationship between the franchisor and its affiliates.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor does not have any predecessors. The business history provided relates to the principals' separate affiliate companies, not a predecessor entity from which the franchise system was acquired.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate history and confirm the absence of any predecessors with undisclosed issues.
• It is still valuable to have a business advisor research the history and reputation of the affiliate companies mentioned in Item 1.
• Asking long-term employees of the affiliate companies, if possible, about their business history could provide additional context.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "No litigation is required to be disclosed in this Item." This suggests an absence of recent, material legal actions involving the franchisor, its predecessors, or management related to fraud, contract breach, or franchise law violations. A clean litigation history is a positive indicator, but does not guarantee future disputes.

Potential Mitigations

• Your attorney can conduct an independent public records search to verify the absence of significant litigation.
• It is still important to discuss dispute resolution experiences with current and former franchisees.
• A business advisor can help you evaluate the franchisor's overall reputation within the industry.