Explanation

This risk was not identified in the FDD Package. Rapid growth can strain a franchisor's ability to provide adequate support to all its franchisees. While this FDD does not show excessively rapid growth, it's a key factor to monitor in any franchise system, especially if financial resources appear limited. A franchisor expanding faster than its support infrastructure can lead to delays in training, site selection assistance, and operational problem-solving for franchisees.

Potential Mitigations

• A business advisor can help you assess whether the franchisor's support infrastructure is capable of handling its projected growth.
• Discussing the franchisor’s growth plans and support staffing with current franchisees can provide valuable insight.
• An accountant's review of financial statements can help determine if the franchisor has the capital to support its expansion goals.

Explanation

This risk was not identified in the FDD Package. Some franchise concepts are based on fleeting trends, posing a risk of declining consumer interest over the long term. A prospective franchisee should always consider whether the core product or service meets a sustainable customer need. Evaluating the franchisor's commitment to research, development, and adaptation is key to assessing the long-term viability of the business beyond any current popularity.

Potential Mitigations

• A business advisor can help you research the long-term market trends for the industry to gauge its sustainability.
• Reviewing the franchisor's history of innovation and plans for future development provides insight into their adaptability.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. When a franchise is owned by a private equity firm, there may be a focus on short-term returns that could potentially conflict with the long-term health of franchisees. This FDD does not indicate that DFG is owned by a private equity firm. However, it's always important to understand the ownership structure of any franchisor.

Potential Mitigations

• A business advisor can help research the ownership structure and track record of any entity that owns a franchisor.
• Consulting your attorney about clauses related to the sale or assignment of the franchise system is important for any FDD.
• Asking current franchisees about any changes in system philosophy or support levels can reveal impacts of ownership changes.

Explanation

This risk was not identified in the FDD Package. The FTC Rule requires franchisors to disclose parent companies and, in certain circumstances, provide their financial statements. A failure to do so can hide financial instability or other risks. This FDD properly discloses DFG's parent, DogDrop, Inc., and provides the necessary financial statements for the franchising entity as required.

Potential Mitigations

• Your attorney should always verify that the FDD properly discloses any parent companies and their role.
• An accountant can help determine if parent company financials are required and, if so, whether they have been provided.
• A business advisor can assist in researching the relationship and dependencies between a franchisor and its parent company.

Explanation

This risk was not identified in the FDD Package. A franchisor's history may include predecessors, and it's important that their track record, including any litigation or bankruptcy, is fully disclosed. In this case, Item 1 states that DFG has no predecessor company, so this risk is not present based on the disclosures.

Potential Mitigations

• Your attorney should always carefully review Item 1 of any FDD for information about predecessor companies.
• If a predecessor exists, researching their history for red flags like litigation or high franchisee turnover is a crucial due diligence step for your business advisor.
• Speaking with long-term franchisees who may have operated under a predecessor can provide invaluable historical context.

Explanation

This risk was not identified in the FDD Package. A pattern of lawsuits filed by franchisees against a franchisor alleging fraud or misrepresentation can be a significant red flag. Item 3 of this FDD states, "No litigation is required to be disclosed in this Item," indicating no such pattern exists based on the legal disclosure requirements.

Potential Mitigations

• Your attorney should always conduct a thorough review of Item 3 in any FDD for disclosures of litigation.
• Even with a clean Item 3, asking current and former franchisees about any informal disputes can provide additional insight.
• A business advisor can help you perform independent online searches for any news or reports of legal issues involving the franchisor.