Explanation

The franchisor, Exercise Coach USA, LLC (Exercise Coach), provided audited financial statements which appear to show a stable financial position. The statements for 2023 and 2024 indicate consistent profitability and positive net worth. While past performance is not a guarantee of future results, these financials do not present the typical red flags associated with an unstable franchisor, such as operating losses or a 'going concern' note from the auditor.

Potential Mitigations

• Your accountant should conduct a thorough review of the audited financial statements, including all notes, to form an independent opinion on the franchisor's financial health.
• Ask your financial advisor to assess the franchisor's cash flow and capitalization to determine if they can adequately support the system's growth.
• It is wise to discuss the financial trends with your business advisor to understand the company's long-term stability.

Explanation

This risk was not identified in the FDD Package. Rapid growth can strain a franchisor's ability to provide adequate support. While Exercise Coach is growing, the rate of expansion disclosed in Item 20, when viewed alongside their profitable financial statements and established history since 2011, does not appear to be outpacing their support capabilities at this time. However, this is a factor you should continue to monitor throughout your due diligence.

Potential Mitigations

• Asking current franchisees about the quality and timeliness of the support they receive from the franchisor is a valuable due diligence step.
• A business advisor can help you evaluate if the franchisor's support staff and infrastructure, as described in Item 11, are sufficient for the current system size.
• Your accountant should review the franchisor's spending on support and training relative to its revenue growth.

Explanation

This risk was not identified in the FDD Package. The franchisor, Exercise Coach, began franchising in 2011 and shows a significant number of operating units in Item 20. The management team described in Item 2 has extensive experience in the industry, and the financial statements in Item 21 appear stable. Therefore, the risks associated with a new or unproven system are not present.

Potential Mitigations

• Reviewing the franchisor's history and the business experience of its management team in Items 1 and 2 is always a prudent step.
• A business advisor can help you research the company's reputation and history within the fitness industry.
• Engaging with a range of franchisees, both new and long-standing, can provide insight into the system's evolution and stability.

Explanation

This risk was not identified in the FDD Package. A fad business relies on a short-term trend for its success. The Exercise Coach model is centered on personal fitness training, specifically for an aging population, which represents a large and long-term demographic trend. The business has been operating since 2011, suggesting a level of sustained market demand beyond that of a typical fad.

Potential Mitigations

• Independent research into the long-term trends of the boutique fitness industry and services for the 50+ population should be conducted with a business advisor.
• It is useful to ask the franchisor about its research and development plans for evolving its services to maintain long-term market relevance.
• Discussing the business's sustainability with existing franchisees can provide valuable, real-world perspective.

Explanation

This risk was not identified in the FDD Package. Item 2 of the FDD details the business experience of the franchisor's key management personnel. The executive team, including the CEO and COO, demonstrates many years of direct experience with The Exercise Coach brand itself and within the personal training industry. This level of specific, long-term experience mitigates the risks associated with an inexperienced management team.

Potential Mitigations

• It is always a good practice to review the backgrounds of the key executives listed in Item 2 with your business advisor.
• Engaging with current franchisees to inquire about their perception of the management team's competence and vision is recommended.
• Your attorney can help you investigate if there has been any significant recent turnover in the franchisor's executive leadership.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that Exercise Coach is a limited liability company and does not disclose ownership by a private equity firm. The risks typically associated with a private equity owner, such as a focus on short-term returns over franchisee health, do not appear to be present based on the information provided.

Potential Mitigations

• A clear understanding of the franchisor's ownership structure, as disclosed in Item 1, should be confirmed with your attorney.
• Inquiring about any potential plans for a sale of the company during franchise sales calls can sometimes provide insight.
• A business advisor can help you research public records to confirm the ownership details provided in the FDD.

Explanation

This risk was not identified in the FDD Package. The FDD does not indicate the existence of a parent company. Exercise Coach USA, LLC appears to be the primary entity, and its audited financial statements are provided in Item 21. Therefore, the risk of a hidden, financially unstable parent company that could negatively affect the system is not present.

Potential Mitigations

• Your attorney can help you verify the corporate structure of the franchisor as disclosed in Item 1.
• It is always wise to ensure that the financial statements provided in Item 21 belong to the actual entity granting you the franchise.
• An accountant can confirm that no parent company guarantees are mentioned or relied upon in the financial statement notes.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD states that the franchisor has no predecessors. This means the company did not acquire the franchise system from a prior entity. As such, there are no risks related to a hidden or problematic history from a predecessor company.

Potential Mitigations

• Confirming the franchisor's corporate history as disclosed in Item 1 is a standard part of due diligence for your attorney.
• Even without a predecessor, it is still prudent to review the franchisor's own history in Items 3 (Litigation) and 4 (Bankruptcy).
• A business advisor can assist in researching the brand's history to ensure no other entities were involved in its early development.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "No litigation is required to be disclosed in this Item." This indicates there have been no recent, material legal actions involving the franchisor, its predecessors, or management that meet the disclosure requirements, such as claims of fraud, misrepresentation, or franchise law violations. This lack of litigation history is a positive indicator.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor that may not have met the technical requirements for disclosure in Item 3.
• Inquiring with current and former franchisees about any past or pending legal disputes is a wise due diligence step.
• A business advisor can help you research online forums or news articles for any mention of franchisee disputes.