Explanation

The audited financial statements for Better Together, LLC (Dogtopia) for the years ending December 28, 2024, and December 30, 2023, do not indicate financial instability. The company reports significant net income and substantial member's equity. While positive financials are a good sign, they do not guarantee future success or the profitability of any individual franchise. Your own business's financial health will depend on your specific operations and market conditions.

Potential Mitigations

• Your accountant should review the franchisor's complete financial statements, including all notes, to form an independent opinion of their financial health.
• A business advisor can help you create financial projections for your own location, which should not rely solely on the franchisor's past performance.
• Consult with your attorney to understand any financial obligations or guarantees you must make to the franchisor.

Explanation

This risk was not identified in the FDD Package. Dogtopia was established in 2005 and has a long operational history with a large number of franchised and company-owned units, as shown in Items 1 and 20. An unproven system presents higher risks because its business model, brand recognition, and support structures are not well-established. It is crucial to verify a franchisor's track record and experience before investing.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you assess the franchisor's history and the system's maturity.
• An attorney can help you understand the risks associated with a new franchise system, which may warrant negotiating for more favorable terms.
• Talking to the initial franchisees of any system is a key due diligence step to understand early challenges.

Explanation

This risk was not identified in the FDD Package. Dogtopia operates in the pet services industry, specifically dog daycare, which has seen sustained demand. A fad business is one based on a short-term trend, posing a risk that consumer interest could decline, leaving you with a long-term contract for an obsolete business. It's important to assess the long-term viability and consumer demand for any franchise concept before investing.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for a particular product or service.
• Evaluating a franchisor's commitment to research and development, as described in Item 11, can provide insight into their plans for staying relevant.
• Your financial advisor can help model the business's potential resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 lists executives with extensive experience in franchising and related business sectors. Inexperienced management can be a significant risk, as they may lack the expertise to provide effective support, manage growth, or navigate industry challenges. Evaluating the background and track record of the franchisor's key leadership team is a crucial part of due diligence.

Potential Mitigations

• Your business advisor should always help you thoroughly vet the executive team's experience in both franchising and the specific industry.
• Speaking with current franchisees provides direct insight into their confidence in the management team's leadership and support.
• An attorney can help you assess whether the support obligations outlined in the agreement are robust enough, regardless of management experience.

Explanation

This risk was not identified in the FDD Package. The FDD clearly discloses the parent company, Dogtopia Enterprises, LLC, in Item 1. The franchisor, Better Together, LLC, provides its own audited financial statements in Item 21. A failure to disclose a parent entity or its financials when required can obscure the true financial stability and control structure of a franchise system. This transparency is vital for a complete risk assessment.

Potential Mitigations

• Your attorney should always verify the corporate structure and identify all parent and affiliate companies.
• An accountant should confirm that all required financial statements, including those of a parent or guarantor if necessary, are provided and audited.
• Understanding the full corporate structure helps assess where ultimate control and financial responsibility lie.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor does not have any predecessors. A predecessor is a company from which the franchisor acquired a major portion of its assets. A lack of disclosure about a predecessor can hide a history of business failures, litigation, or other issues that could be relevant to your investment decision. A thorough review of a franchisor's lineage is an important due diligence step.

Potential Mitigations

• An attorney should carefully review Item 1 to ensure all predecessor information is properly disclosed.
• If a predecessor exists, independent research into its history can reveal important information about the franchise system's past performance.
• Asking long-term franchisees about their experience under any prior ownership can provide valuable context.