Explanation

The parent company of Dryer Vent Superheroes Franchising LLC (DVSH), Home Run Holdings LLC, which guarantees performance, has audited financial statements showing negative members' equity (a deficit of $154,440) for fiscal year 2024. Furthermore, DVSH's own financial statement is unaudited. This negative equity and lack of audited financials for the franchisor itself may indicate financial instability and could impact its ability to support you or grow the brand.

Potential Mitigations

• A franchise accountant should meticulously review the parent company's audited financials, including all notes, to assess its viability and ability to support DVSH.
• It is important to discuss the implications of the parent's negative equity and the franchisor's unaudited financials with your financial advisor.
• Your attorney should inquire about what specific financial assurances, if any, the franchisor has in place to protect franchisees.

Explanation

The franchise system shows signs of significant instability. In 2024, the system began the year with 8 outlets and experienced 4 departures (3 terminations and 1 ceased operation). This represents an exceptionally high 50% turnover rate based on the number of units at the start of the year. Such a high rate in a very young system is a critical warning sign that may point to systemic problems with the business model, profitability, or franchisor support.

Potential Mitigations

• A thorough discussion with your attorney is crucial to understand the gravity of this turnover rate.
• Contacting a significant number of the former franchisees listed in Item 20 is essential to learn why they left the system; a business advisor can help prepare questions.
• Your accountant should help you model a worst-case financial scenario given the high rate of franchisee failure.

Explanation

The system grew from 0 to 25 franchised outlets in its first two years of operation. While growth can be positive, this rapid expansion, when combined with the parent company's negative equity and the extremely high franchisee turnover rate, presents a significant risk. The franchisor's resources may be stretched thin, potentially compromising the quality and availability of essential training, marketing, and operational support for all franchisees.

Potential Mitigations

• In discussions with current franchisees, you should inquire specifically about the quality and timeliness of support they are receiving from the franchisor.
• A business advisor can help you question the franchisor about their specific plans for scaling support infrastructure to match this rapid growth.
• Understanding the financial capacity to support this expansion requires a deep dive into the financials with your accountant.

Explanation

DVSH is an unproven franchise system. The franchisor was formed in late 2022 and has a very limited operating history, which is explicitly stated as a 'Special Risk' in the FDD. The system's high franchisee turnover rate and the parent company's weak financial position amplify the risks associated with investing in a new and unproven brand. Success depends heavily on a concept and support structure that are not yet time-tested.

Potential Mitigations

• Engaging a business advisor to perform deep due diligence on the business model's viability is critical.
• It is imperative to speak with the earliest franchisees listed in Item 20 to understand their experience from the beginning.
• Your attorney may be able to negotiate more franchisee-favorable terms to compensate for the higher risk of joining a new system.

Explanation

The management team, per Item 2, has experience starting other recent franchise concepts (e.g., Up Closets, Lighting Squad) through their affiliated companies. However, this history is in launching new brands, not necessarily in the long-term, sustained management of a mature franchise system. The lack of a long-term operational track record for this specific brand, coupled with the high turnover in Item 20, suggests potential inexperience in providing sustained support necessary for franchisee success.

Potential Mitigations

• A business advisor can help you investigate the performance and franchisee satisfaction at the other, older brands managed by these executives.
• When speaking with current DVSH franchisees, asking specific questions about the quality and consistency of management's support is vital.
• Your attorney should be consulted to understand any risks associated with the complex structure of affiliated companies.

Explanation

For a brand that only began franchising in late 2022, Item 3 discloses a concerning pattern of litigation. There are two pending arbitration claims from former franchisees against DVSH or its affiliate and founder. Both cases involve serious allegations of fraudulent inducement and constructive termination. This pattern may indicate significant issues with the sales process, the business model's viability, or the franchisor's relationship with its franchisees.

Potential Mitigations

• A thorough review of the specific allegations in these lawsuits with your franchise attorney is absolutely essential.
• This pattern should be a primary topic of discussion when you speak with current and other former franchisees.
• Treating these disclosures as a major red flag, your attorney can advise you on the heightened risks of proceeding with this investment.