Explanation

This risk was not identified. The outlet data in Item 20 does not suggest excessively rapid growth that might outpace the franchisor's ability to provide support. However, uncontrolled growth can be a risk in franchise systems, as it can dilute brand quality and stretch support resources thin, potentially leaving individual franchisees without adequate assistance, training, or guidance.

Potential Mitigations

• Engaging a business advisor to review the system's growth strategy in relation to its support infrastructure is a prudent step.
• Your accountant can analyze the franchisor's financials in Item 21 to assess if they have the capital and personnel to support their stated growth plans.
• It is wise to ask current franchisees about the quality and timeliness of the support they currently receive.

Explanation

This specific risk was not identified, as Item 1 indicates Dollar Rent A Car, Inc. (Dollar) and its parent have extensive, long-term experience in the vehicle rental industry. Investing in a new or unproven system can be risky because the business model may not be validated, brand recognition is low, and the franchisor may lack the experience to provide effective support.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you assess the depth of the management team's experience in both the industry and in franchising.
• An accountant can review the financial track record to gauge the system's historical performance and stability.
• Legal counsel should review the FDD for any signs of inexperience that could translate into contractual risks.

Explanation

The car rental business is a long-established industry, not a fad. This risk was not identified. For other franchises, investing in a concept based on a short-term trend can be dangerous. When consumer interest wanes, the business may no longer be viable, but your long-term contractual obligations to the franchisor, such as paying royalties, would likely remain.

Potential Mitigations

• A business advisor can help research the long-term market demand and competitive landscape for any industry you consider entering.
• Reviewing a franchisor's history of innovation and adaptation with your attorney can provide insight into its long-term viability.
• Your financial advisor can help model the financial risks of a business that may have a limited lifecycle.

Explanation

This risk was not identified. Item 2 details an executive team at the parent company, Hertz, with extensive experience in the transportation and rental industries. In any system, inexperienced management can pose a risk, as it may lead to poor strategic decisions, weak operational support, and an inability to adapt to market changes, negatively impacting franchisee success.

Potential Mitigations

• Your business advisor can help you research the backgrounds of key executives for any franchise opportunity.
• Consulting with current franchisees provides direct insight into their confidence in the management team's leadership and strategic direction.
• An attorney can review the FDD for signs that a new management team has materially altered the franchise relationship.

Explanation

The FDD does not indicate direct ownership by a private equity firm. However, Item 16 and Item 17 note relationships with large investment funds. This structure can sometimes create risks similar to PE ownership, where focus may shift to short-term returns over the long-term health of the brand and its franchisees. This could potentially influence decisions on fees, support levels, and system investment.

Potential Mitigations

• Should you encounter a PE-owned franchise, having your business advisor research the firm’s reputation with other brands is crucial.
• Speaking with franchisees who have operated under an investment firm's influence can reveal changes in culture or support.
• Your attorney can advise on contractual protections against adverse changes following a sale of the franchise system.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies, and Item 21 provides their financial statements. In some cases, a franchisor might be a thinly capitalized subsidiary, and the failure to disclose or provide financials for a more substantial parent company can obscure the true financial health and backing of the system. This can hide significant risks from a prospective franchisee.

Potential Mitigations

• An attorney should always verify that the entities disclosed in Item 1 align with the financial statements in Item 21 and any guarantees in Item 22.
• If a franchisor is a new or small LLC, your accountant should assess if it has adequate capitalization or if a parent guarantee is necessary.
• A business advisor can help investigate the corporate structure to identify any undisclosed controlling entities.