Explanation

This risk was not identified in the FDD package. Item 20 data shows no franchisee turnover in the last three years. Generally, high turnover can be a red flag indicating systemic problems, franchisee dissatisfaction, or lack of profitability. A stable system is usually a positive sign, although the very small size of this system should also be considered.

Potential Mitigations

• It is wise to discuss the business model's sustainability and reasons for the low number of units with current franchisees.
• A business advisor can help you assess the growth potential and risks associated with a very small franchise system.
• Your attorney can help you understand any contractual risks that could lead to turnover in the future.

Explanation

This risk is not present, as Item 20 data shows the system has not grown in the last three years. Rapid growth can strain a franchisor's ability to provide adequate support. The lack of growth here presents a different kind of risk related to brand momentum and market acceptance, which you should evaluate separately.

Potential Mitigations

• Discussing the reasons for the system's lack of growth with the franchisor and current franchisees is a prudent step.
• A business advisor can help you analyze the market potential and competitive landscape for this brand.
• Your attorney should review the franchisor's obligations to support and grow the brand.

Explanation

This risk does not appear to be present. The business model, a high-end hair and beauty salon, is a well-established concept rather than a fad. A fad business carries the risk of declining consumer interest over time, which could jeopardize your long-term investment even if your contractual obligations continue.

Potential Mitigations

• A business advisor can help you research local market demand for high-end salon services.
• It is always wise to assess the long-term consumer trends in the beauty industry with your own market research.
• Consult with your financial advisor to model the business's resilience to economic shifts.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the management team has experience in the beauty and franchising industries, drawing from its French parent company and its US affiliate, Fantastic Sams. In general, inexperienced management can pose a risk through unproven systems and inadequate support, but that does not appear to be the case here.

Potential Mitigations

• Engaging a business advisor to help you vet the management team's specific track record with US-based operations is still a good practice.
• It is prudent to discuss the quality and accessibility of management support with the current US franchisees.
• Your attorney can help clarify the reporting structure and decision-making authority within the management team.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. This type of ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system. The ownership structure described in Item 1 appears to be a corporate hierarchy within the beauty industry.

Potential Mitigations

• Even without private equity, understanding the ultimate parent company's goals and strategy is important, a topic for discussion with your business advisor.
• An attorney should review any clauses related to the franchisor's right to sell or assign the system.
• Speaking with existing franchisees about their perception of the parent company's influence is recommended.

Explanation

This risk is not present. Item 1 clearly discloses the franchisor's parent and affiliated companies. Furthermore, the FDD provides the financial statements of the guarantor, FSFC, as required. Proper disclosure of parent companies is crucial for a franchisee to fully assess the financial backing and overall stability of the franchise system.

Potential Mitigations

• Your attorney should confirm that the disclosures regarding parent companies and guarantors comply with all applicable regulations.
• An accountant's review of the guarantor's financials is crucial to understanding the strength of the financial backing.
• A business advisor can help you understand the relationships between the various affiliated entities.

Explanation

This risk is not present. Item 1 provides a detailed history of the franchisor and its predecessors. Obscuring predecessor history can hide past failures or litigation, but the disclosure here appears compliant. The disclosed history itself, however, should be reviewed with your professional advisors.

Potential Mitigations

• Your attorney should still carefully review the disclosed predecessor information in Items 1, 3, and 4.
• A business advisor can help you research the track record of any predecessors for context on the brand's history.
• Asking long-term franchisees in any affiliated systems about their experience is a valuable due diligence step.