Explanation

This risk was not identified in the FDD package. As a new franchise system, DOXA reported having zero franchised outlets at the end of the last three fiscal years, so there is no history of franchisee turnover to analyze. High turnover in an established system can be a critical warning sign of potential problems with profitability, support, or the business model itself, making Item 20 a key area for due diligence in most cases.

Potential Mitigations

• It is essential to have your franchise attorney review Item 20 in any FDD to identify trends in terminations, non-renewals, and closures.
• Your accountant can help calculate the actual turnover rate and compare it to industry averages to assess system health.
• A business advisor can help you formulate questions for current and former franchisees to understand the reasons behind any disclosed turnover.

Explanation

This risk was not identified in the FDD package. As a new franchisor with no operating franchises, there is no history of rapid growth. However, Item 20 projects 25 new franchises in the next year, which is an aggressive target for a new system. If this growth is achieved, it could strain support resources. Rapid growth in any system can sometimes outpace a franchisor's ability to provide adequate training and operational support to its new franchisees.

Potential Mitigations

• Should you consider a rapidly growing system, it is wise to ask your business advisor to help assess if the franchisor's support infrastructure is scaling with its growth.
• Discussing the quality and responsiveness of support with both new and established franchisees can provide valuable insight.
• Your accountant should review the franchisor's financial statements to determine if they have the capital to adequately support a rapidly expanding system.

Explanation

This risk was not identified in the FDD package. The business model, which involves providing offshore talent and business process outsourcing, is part of a large and established global industry. While subject to economic trends, the core service is not based on a short-lived fad. A fad business carries the risk that consumer interest may decline, potentially leaving you with a worthless business even while your contractual obligations continue.

Potential Mitigations

• Engaging a business advisor to research the long-term market demand for any franchise concept's products or services is a prudent step.
• It is wise to assess a business model's resilience to economic shifts and its sustainability beyond current trends with your financial advisor.
• Your attorney should review the FDD for any disclosures regarding the franchisor's plans for innovation and adaptation to market changes.

Explanation

This risk was not identified as a major concern. The management team detailed in Item 2 appears to have considerable executive experience in business operations, finance, and related industries. Notably, key personnel like the Chief Franchise Officer and Senior Director of Franchise Sales have direct prior experience in franchise development and management roles at other established franchise systems. This experience may help mitigate risks associated with the newness of the franchise system itself.

Potential Mitigations

• It is always a good practice to have your business advisor help you research the backgrounds of the key management team.
• Discussing the management team's accessibility and quality of support with any available franchisees is a key due diligence step.
• Your attorney can help you understand the roles and responsibilities of the management team as described in the FDD.

Explanation

This risk was not identified in the FDD package. While the franchisor has a multi-layered corporate structure involving a parent and holding company, there is no indication that it is owned by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profitability and a quick exit, which may not align with the long-term health of franchisees. This can manifest as increased fees, reduced support, or a sale of the system.

Potential Mitigations

• In any franchise review, it is beneficial to have a business advisor help research the ownership structure and the owner's track record with other brands.
• Understanding the franchisor's rights to sell or assign the franchise system is a critical discussion to have with your attorney.
• Asking existing franchisees about any changes in system philosophy or support levels can reveal the impact of the current ownership.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. While a parent company previously operated a similar business, it was not disclosed as a legal predecessor from which the franchisor acquired its primary assets. A predecessor's history, including any past litigation or bankruptcy, can be a crucial indicator of the historical health and potential inherited issues of a franchise system.

Potential Mitigations

• It is important for your attorney to review Item 1 to identify any disclosed predecessors and their history in Items 3 and 4.
• If a system was acquired from a predecessor, conducting independent research on that entity's track record can be a valuable due diligence step for your business advisor.
• Speaking with long-term franchisees about their experience under any prior ownership can provide important context.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. A pattern of lawsuits in Item 3, particularly cases brought by franchisees alleging fraud or misrepresentation, can be a significant red flag. It may indicate systemic problems within the franchise relationship or with the franchisor's sales practices. Conversely, a high number of lawsuits initiated by the franchisor may suggest an overly aggressive or litigious culture.

Potential Mitigations

• It is crucial that your franchise attorney carefully reviews any litigation disclosed in Item 3 to understand the nature and outcome of the disputes.
• A business advisor can help you investigate the context of any disclosed litigation by speaking with current and former franchisees.
• Your attorney can conduct public record searches to see if any other litigation exists that was not required to be disclosed.