Explanation

This risk was not identified in the FDD package. Dog training is a well-established service industry with consistent consumer demand. The business model does not appear to be based on a short-term trend or fad, which can pose a risk to long-term viability even if initial interest is high. Your franchise obligations would continue even if a fad-based business saw its popularity decline.

Potential Mitigations

• For any franchise concept, a business advisor can help you research the industry to assess the long-term sustainability of consumer demand.
• It is wise to evaluate a franchisor’s plans for innovation and adaptation to stay relevant in a changing market.
• An accountant can help you model the financial resilience of the business in the face of potential market shifts or economic downturns.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives have prior experience in the dog services industry and in franchising. The Academy Director is also an existing franchisee. Inexperienced management can be a significant risk, as they may lack the specific skills needed to run a franchise system effectively, provide adequate support, or make sound strategic decisions for the brand, even if they understand the core business.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor help you research the backgrounds of the key management team members.
• Speaking with existing franchisees about the quality of management's support and strategic direction provides crucial real-world feedback.
• Always ask the franchisor about their team's specific experience in both the industry and in managing a franchise network.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned by a private equity firm. When a PE firm owns a franchisor, there can be a risk that its focus on short-term returns for investors may lead to decisions, such as cutting support or increasing fees, that are not aligned with the long-term health of franchisees' businesses.

Potential Mitigations

• If a franchisor is owned by a PE firm, your business advisor should help you research the firm's reputation and track record with other franchise systems.
• It would be crucial to ask current franchisees about any changes they have experienced since the PE acquisition.
• Your attorney should analyze the franchise agreement for terms that might facilitate a quick sale of the system, which is common for PE-owned brands.

Explanation

This risk was not identified in the FDD package. The franchisor discloses a parent company, ITK9 Company, LLC. However, the parent company does not provide a guarantee of the franchisor's performance, so its financial statements are not required for disclosure. Failing to disclose a required parent entity's financials can obscure the true financial stability and backing of a franchise system, especially if the franchisor is a thinly capitalized subsidiary.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all relevant parent and affiliate entities are disclosed.
• If a parent company guarantees the franchisor's obligations, your accountant must review the parent's financial statements.
• Understanding the relationships between the franchisor, parent, and other affiliates is a key task for your attorney.

Explanation

This risk was not identified in the FDD package. The franchisor discloses two predecessor entities in Item 1 and states in Items 3 and 4 that there is no litigation or bankruptcy history to report for them. Inadequate disclosure about predecessors can hide a history of business failures, franchisee disputes, or other systemic problems that could be inherited by the new franchisor entity and affect you.

Potential Mitigations

• It is always important to have your attorney carefully review the disclosures regarding any predecessor entities in Items 1, 3, 4, and 20.
• A business advisor can assist in researching the public record and reputation of any predecessor companies.
• You should ask long-term franchisees about their experiences under any previous ownership or corporate structure.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation history that requires disclosure. A pattern of litigation, particularly lawsuits initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag indicating systemic problems with the franchisor's business practices. Similarly, a high volume of lawsuits filed by the franchisor against franchisees can suggest an overly aggressive or litigious culture.

Potential Mitigations

• Your attorney should always carefully analyze any disclosed litigation in Item 3 to understand the nature of the claims and their outcomes.
• Independent research on disclosed cases, with the help of your attorney, can provide valuable context beyond the FDD's summary.
• A clean litigation history is a positive factor, but comprehensive due diligence, including speaking with former franchisees, remains essential.