Explanation

Item 20 data shows the total number of franchised outlets has decreased over the last three years, with a net loss of four units in 2024. While the rate of terminations and non-renewals is not high, a shrinking system can indicate potential challenges with brand competitiveness, franchisee profitability, or overall market position. This trend may suggest that growing your own business within the system could be challenging.

Potential Mitigations

• Speaking with a significant number of current and former franchisees can provide insight into the reasons for system stagnation or decline.
• A thorough analysis of local market competition with your business advisor is essential to gauge growth potential.
• Your accountant can help you create financial projections that account for the challenges of operating within a shrinking system.

Explanation

This risk was not identified in the FDD Package. The franchise system is not experiencing rapid growth; in fact, Item 20 data indicates the system has been shrinking. Uncontrolled growth can strain a franchisor's ability to provide necessary support, so its absence here is a positive indicator for the quality of support for existing franchisees.

Potential Mitigations

• Your business advisor can help you evaluate if the franchisor's current size and growth rate align with your own business goals.
• It is still wise to ask current franchisees about the quality and timeliness of support, which an attorney can help you phrase.
• An accountant's review of the franchisor's financials can help determine if they have adequate resources for current support levels.

Explanation

This risk was not identified in the FDD Package. Duraclean International, Inc. (Duraclean) is a very mature company, founded in 1930 and franchising since 1946, as disclosed in Item 1. An unproven system carries higher risks of failure and inadequate support, so the long history here is a positive factor. This extensive history provides a long track record of operational experience.

Potential Mitigations

• Engaging a business advisor to research the company's reputation over its long history can provide valuable context.
• Your attorney can help you ask long-tenured franchisees about the system's evolution and the franchisor's consistency.
• An accountant should still review the recent financial performance to ensure historical stability translates to current strength.

Explanation

This risk was not identified in the FDD Package. The business operates in the cleaning and restoration industry. These are established, necessary services with consistent demand, not a business model based on a short-lived trend or fad. This suggests a more stable long-term market for your services.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the cleaning and restoration industry in your local market.
• Consulting with your accountant can help you build financial models based on stable, recurring service demand.
• Your attorney can review the franchise agreement to ensure you have the flexibility to adapt services to future market needs.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses that the key executives at Duraclean have extensive and long-term experience with the company and within the franchising and cleaning industries, some with careers starting in the 1960s and 1980s. This level of experience can be beneficial for providing knowledgeable support and strategic direction.

Potential Mitigations

• A business advisor can help you assess how management's specific experience aligns with the support you will need.
• It is still valuable to speak with current franchisees to confirm that the management team's experience translates into effective support.
• Your attorney can help you frame questions to the franchisor about management's vision for the future.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that Duraclean is a privately-held corporation and does not mention any ownership by a private equity firm. This means management decisions may be more focused on long-term system health rather than short-term investor returns, which can be a risk with PE-owned brands.

Potential Mitigations

• Your attorney should still review the assignment clauses in the franchise agreement to understand what happens if the company is sold in the future.
• Asking the franchisor about their long-term ownership plans can provide helpful context.
• A business advisor can help you understand the benefits and drawbacks of different franchisor ownership structures.

Explanation

This risk was not identified in the FDD Package. Item 1 states clearly that Duraclean does not have a parent company. When a franchisor is a subsidiary, the parent's financial health can be critical, and its non-disclosure is a red flag. The absence of a parent company simplifies the corporate structure and your due diligence.

Potential Mitigations

• Your attorney can verify the corporate structure to confirm the absence of any undisclosed controlling entities.
• An accountant's review of the provided financials is still crucial to assess the standalone viability of the franchisor.
• A business advisor can help you understand the implications of a standalone franchisor versus one backed by a parent company.

Explanation

This risk was not identified in the FDD Package. Item 1 states that Duraclean does not have a predecessor. A franchise system with a history of predecessors can sometimes have inherited issues or a complex past that is difficult to evaluate. The absence of a predecessor simplifies the process of understanding the franchisor's history and track record.

Potential Mitigations

• Your attorney can conduct public record searches to confirm there are no undisclosed predecessor entities.
• A business advisor can help you focus your due diligence on the direct operational history of the current franchisor entity.
• Speaking with long-term franchisees remains a valuable way to understand the company's history.

Explanation

This risk was not identified in the FDD Package. Item 3 explicitly states that there is no litigation that requires disclosure. A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or breach of contract, is a major red flag indicating systemic problems. The absence of such disclosed litigation is a positive sign.

Potential Mitigations

• Your attorney can still conduct independent public record searches for litigation as part of comprehensive due diligence.
• Asking current and former franchisees about their experiences with disputes, even those not leading to litigation, can be insightful.
• A business advisor can help you assess the overall health of the franchisor-franchisee relationship within the system.