Explanation

The data in Item 20 does not indicate rapid system growth; in fact, the total number of franchised outlets has declined over the last three years. While this mitigates the specific risk of support being strained by rapid expansion, the reasons for the system's shrinkage present their own set of concerns that should be investigated.

Potential Mitigations

• When evaluating any franchise, it's wise to have your accountant assess the franchisor's financial capacity to support its existing and planned number of units.
• A business advisor can help you analyze growth projections in the context of the franchisor's management experience and support infrastructure.
• Consulting with a franchise attorney is important to understand the support obligations detailed in the franchise agreement.

Explanation

This risk is not present. ERA Franchise Systems LLC (ERA) is a long-established real estate franchise system, with predecessors offering franchises since 1972, as disclosed in Item 1. An unproven system can be a significant risk due to a lack of brand recognition and underdeveloped operational support, but that does not appear to be the case here.

Potential Mitigations

• When considering any franchise, a business advisor can help you research the brand's history and its standing within its industry.
• It is crucial to have an accountant review the financial statements to ensure the franchisor is stable and well-capitalized.
• Speaking with long-standing franchisees, with guidance from a franchise attorney, can provide insight into the system's evolution and stability.

Explanation

The franchise is for a residential real estate brokerage, which is a well-established and enduring industry. This is not a fad business, which would carry the risk of declining consumer interest over time. The longevity of the real estate brokerage model mitigates concerns that the business is based on a short-term trend.

Potential Mitigations

• For any business concept, it's wise to have a business advisor help you conduct independent market research to assess long-term consumer demand.
• Your financial advisor can help evaluate a business model's resilience to economic cycles and changing consumer tastes.
• An attorney can help review the franchisor's contractual obligations to innovate and adapt the system over the long term.

Explanation

This risk does not appear to be present. The executive team profiles in Item 2 show that the key personnel have extensive and long-standing experience within the real estate and franchising sectors, often with ERA's parent company, Anywhere, or its other major brands. Inexperienced management can be a major risk, but the leadership team here appears well-versed in the industry.

Potential Mitigations

• Regardless of disclosed experience, a business advisor can help you independently research the reputation and track record of the franchisor's key executives.
• It's always recommended to speak with current franchisees about their direct experiences with the management team's competence and support.
• Your franchise attorney can help you understand the management's contractual obligations for support and system development.

Explanation

The ultimate parent company, Anywhere Real Estate Inc., is a publicly-traded corporation, not a private equity firm, as disclosed in Item 1. While all for-profit companies aim to maximize returns, this structure avoids the specific risks associated with a typical private equity fund's shorter-term investment horizon, which can sometimes lead to decisions that prioritize a quick exit over the long-term health of the franchise system.

Potential Mitigations

• For any franchise, your attorney should review the assignment clauses in the franchise agreement to understand what happens if the franchisor is sold.
• It's beneficial to have a business advisor research the ownership structure and any history of sales or acquisitions.
• Engaging with an accountant to analyze the financial statements can provide insight into the company's financial priorities and performance.

Explanation

This risk is not present. Item 1 and Item 21 clearly disclose the franchisor's parent companies, Anywhere Real Estate Group LLC and Anywhere Real Estate Inc., and explicitly state they are the guarantors of the franchisor's performance. The audited consolidated financial statements for these parent companies are included in Exhibit F, providing the necessary financial transparency.

Potential Mitigations

• It is a crucial step for your attorney and accountant to confirm that the FDD properly discloses all parent and affiliate entities and provides required financial statements.
• When a parent company guarantees performance, your attorney should evaluate the specific terms and legal enforceability of that guarantee.
• A business advisor can help you understand the potential influence that parent and affiliate companies may have on the franchise system.

Explanation

The FDD states in Item 1 that there are no predecessors that require disclosure, although it mentions the brand's franchise history dates back to 1972 through predecessors. The document does not disclose any adverse litigation (Item 3) or bankruptcy (Item 4) involving predecessors. A hidden or troubled predecessor history can be a significant risk, but based on the disclosure, this risk is not identified.

Potential Mitigations

• When evaluating a mature brand, a business advisor can help research its corporate history to understand its evolution and any past ownership changes.
• A franchise attorney can help scrutinize Item 1 disclosures to ensure the definition and identification of predecessors comply with legal requirements.
• Speaking with long-tenured franchisees can often provide valuable historical context about the system's past.