Explanation

This specific risk was not identified in the FDD package. The data in Item 20 shows slow to moderate growth in the number of franchised outlets over the past three years. Rapid growth can be a risk because it may strain a franchisor's ability to provide adequate support, training, and quality control to all of its new franchisees, potentially diminishing the value of the system for everyone.

Potential Mitigations

• A business advisor can help you evaluate whether a franchisor's support infrastructure is keeping pace with its unit growth.
• In discussions with existing franchisees, it is useful to ask about the quality and timeliness of the support they currently receive.
• Your attorney can review the franchise agreement for any minimum support levels the franchisor is contractually obligated to provide.

Explanation

This risk was not identified in the FDD package. The core business is providing men's haircutting and grooming services, which is a long-established industry with consistent demand. While the 'Diesel' branding provides a specific theme, the underlying service is not based on a short-term trend or fad. A fad business carries the risk that consumer interest could decline quickly, potentially leaving you with a failed business but ongoing contractual obligations.

Potential Mitigations

• A business advisor can help you analyze long-term consumer trends to distinguish between a sustainable business concept and a potential fad.
• In your due diligence, you should assess the business's ability to adapt its offerings if market tastes change.
• Your financial advisor can help you evaluate the business model's resilience to economic shifts and changing consumer preferences.

Explanation

This risk was not identified in the FDD package. Item 1, which details the franchisor's corporate structure and affiliates, does not indicate that the franchisor is owned or controlled by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system, potentially impacting franchisee support and profitability.

Potential Mitigations

• Your attorney can help verify the ownership structure of the franchisor to confirm the absence of undisclosed controlling entities.
• If a franchise is owned by a PE firm, a business advisor can help you research the firm’s track record with other franchise brands.
• Understanding the ownership structure is a key piece of due diligence that your accountant and attorney can help with.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that DBF LLC does not have a parent company. It provides a list of its affiliate companies, but none appear to be a parent entity in a way that would require separate financial disclosure under franchise law. Failing to disclose a parent company's financials, when required, can hide critical information about the true stability and backing of the franchise system.

Potential Mitigations

• Your attorney should always review Item 1 to understand the complete corporate structure, including any parent companies or affiliates.
• If a parent company exists and guarantees the franchisor's performance, an accountant should review its financial statements.
• A business advisor can help you understand the potential influence of any parent company on the franchise system's operations.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that DBF LLC has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. When predecessors exist, it's important to review their history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems with the system that may have been inherited by the current franchisor.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and their business history.
• If a predecessor is listed, it's important to research their history for any red flags, such as those found in Items 3 and 4.
• A business advisor can help you understand how a change in ownership from a predecessor might impact the franchise system today.

Explanation

This specific risk was not identified in the FDD package. Item 3 states, "No litigation must be disclosed in this Item." This indicates a clean recent history regarding significant lawsuits involving the franchisor, its predecessors, or its management. A pattern of litigation, especially claims of fraud or breach of contract brought by other franchisees, can be a major red flag about the franchisor’s practices and the health of the system.

Potential Mitigations

• Although no litigation is disclosed, your attorney can conduct independent searches to see if any other legal actions exist.
• It is wise to ask current and former franchisees about any disputes they may have had with the franchisor, even if they didn't result in litigation.
• A business advisor can help you assess the overall health of franchisor-franchisee relations within the system.