Explanation

The provided documents did not include FDD Item 20, which contains data on franchisee turnover. High turnover can be a critical warning sign of systemic problems, such as lack of profitability or poor franchisor support. Without this data, a key indicator of system health cannot be evaluated.

Potential Mitigations

• It is critical to contact a significant number of current and especially former franchisees from the list that must be provided with the full FDD.
• Engage your accountant to help you calculate and analyze turnover rates from the full FDD's Item 20 tables once you receive them.
• Your attorney can help you frame questions for former franchisees to understand their reasons for leaving the system.

Explanation

This risk was not identified, as the documents provided do not include FDD Item 20, which is necessary to assess the rate of system growth. Very rapid growth can strain a franchisor's ability to provide adequate support to all its franchisees. A careful review of the full FDD is required to evaluate this risk.

Potential Mitigations

• Once the full FDD is available, have your accountant analyze the growth data in Item 20 over the past three years.
• Discuss the franchisor's capacity to scale its support systems to match unit growth with your business advisor.
• Interviewing a range of new and established franchisees is crucial to gauge the current quality of franchisor support.

Explanation

This risk was not identified in the provided documents. The business is described as providing commercial hygiene, sanitation, and disinfection services. This appears to be a needs-based business with ongoing demand rather than one tied to a short-term trend or fad. Therefore, the risk of the business model's long-term viability being threatened by waning consumer interest seems low.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term demand for the offered services.
• It is still prudent to evaluate the company's plans for innovation and adaptation to stay competitive.
• Consider the business model's resilience to economic downturns with your financial advisor.

Explanation

This risk was not identified as the provided documents do not include FDD Item 2, which details the business experience of the franchisor's key management personnel. Assessing whether the leadership team has relevant experience in both the specific industry and in managing a franchise system is a critical due diligence step that cannot be completed with the available information.

Potential Mitigations

• Upon receiving the full FDD, have your business advisor thoroughly vet the management team's background as described in Item 2.
• Posing questions directly to the franchisor about the specific franchising experience of their key executives is a valuable step.
• Speaking with existing franchisees about their perception of management's competence and support is essential.

Explanation

This risk was not identified. The franchisor, Enviro-Master International Franchise, LLC, clearly discloses its parent company and guarantor, Enviro-Master Holdings, LLC. Furthermore, audited financial statements for the guarantor have been provided, allowing for an assessment of its financial condition. There is no indication of a failure to disclose a relevant parent company.

Potential Mitigations

• It is always good practice for your attorney to verify the corporate structure and the relationship between the franchisor and its parent.
• Your accountant should confirm that the financial statements provided for the guarantor meet all disclosure requirements.
• Ensure the guarantee agreement provided is legally sound and enforceable with guidance from your legal counsel.

Explanation

This risk was not identified because the provided documents do not include FDD Item 1, which details the franchisor's predecessor history. While the notes to the financial statements mention the acquisition of the operating company in 2022, a full assessment of any inherited issues from the prior ownership structure is not possible without the complete FDD.

Potential Mitigations

• Your attorney should carefully review predecessor information in Items 1, 3, and 4 of the full FDD when it is provided.
• Engaging a business advisor to research the track record of any predecessor entity can provide valuable historical context.
• Asking long-term franchisees about their experience under any previous ownership is a key part of due diligence.

Explanation

This risk could not be assessed because FDD Item 3, which discloses litigation history, was not included in the provided documents. Reviewing litigation is crucial, as a pattern of lawsuits filed by franchisees alleging fraud or by the franchisor against franchisees can indicate serious systemic problems.

Potential Mitigations

• A careful review of all litigation disclosed in Item 3 of the full FDD by your attorney is an essential step.
• Your attorney can help you understand the nature of the claims and the potential implications for you as a franchisee.
• A high volume of franchisor-initiated lawsuits against franchisees for issues like royalty collection could be a red flag to discuss with your attorney.