Explanation

The franchisor's audited financial statements in Item 21 appear to reflect a strong and stable financial position. The company shows significant net worth and consistent profitability. This financial stability is a positive indicator, as it suggests the franchisor has the resources to support its franchisees and invest in the growth and maintenance of the brand.

Potential Mitigations

• Have your accountant review the audited financial statements, including the notes, to provide an independent assessment of the franchisor's financial health.
• Discuss the franchisor's financial performance and capitalization with a business advisor to understand its ability to fund future growth and support.
• Engaging your franchise attorney to confirm there are no red flags in the auditor's opinion letter is a prudent step.

Explanation

The franchisee turnover rates disclosed in Item 20 appear to be very low for a system of this size. The number of terminations, non-renewals, and other cessations is small relative to the total number of operating units. This low turnover can be a positive indicator of franchisee satisfaction and the potential viability of the business model.

Potential Mitigations

• Despite the low numbers, it is wise to contact some of the former franchisees listed in Item 20 to understand their reasons for leaving the system.
• A business advisor can help you interpret the Item 20 tables and compare the turnover rates to industry benchmarks for staffing franchises.
• Discuss the franchisor's process for handling franchisee exits and resales with your franchise attorney.

Explanation

The data in Item 20 indicates that the franchise system is mature and not undergoing rapid expansion. In fact, the total number of outlets has remained stable or slightly decreased over the last three years. This suggests the franchisor's resources are unlikely to be strained by rapid growth, which can be a positive factor for franchisee support.

Potential Mitigations

• Discuss the franchisor's future growth strategy with a business advisor to understand their focus for the coming years.
• Ask current franchisees about their perception of the franchisor's support levels and whether resources seem adequate for the system's needs.
• Your attorney can review the franchisor's obligations for franchisee support outlined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. The franchisor, Express Services, Inc. (ESI), has a very long history, having offered franchises since 1985. A long operational history can indicate a proven business model, established brand recognition, and experienced management, which are generally positive attributes for a prospective franchisee.

Potential Mitigations

• A business advisor can help you assess the franchisor's long-term track record and its evolution over the decades.
• Discuss with current franchisees how the system has adapted and changed over the years to stay competitive.
• Your attorney can review the stability of the franchise agreements and system over time based on the documents provided.

Explanation

The business model, providing temporary and permanent staffing services, is a well-established and essential component of the business economy. It is not considered a fad. However, the business is sensitive to economic cycles, which is a standard risk for this industry.

Potential Mitigations

• Engaging a business advisor to research the local economic outlook and demand for staffing services in your specific market is recommended.
• An accountant can help you model financial scenarios based on different economic conditions to stress-test your business plan.
• Discuss the franchisor's strategies for navigating economic downturns with current franchisees.

Explanation

The executive team detailed in Item 2 appears to have extensive and long-term experience in both the staffing industry and franchising. Several key personnel have been with the company for decades or are themselves franchisees. This depth of experience is generally a positive sign for a system's leadership and operational knowledge.

Potential Mitigations

• A business advisor can help you research the professional backgrounds of the key management personnel listed in Item 2.
• When speaking with current franchisees, inquire about their direct experiences with and perceptions of the management team's competence and support.
• During your own interactions, assess the professionalism and knowledge of the franchising team.

Explanation

This FDD package does not indicate that the franchisor is owned or controlled by a private equity firm. Ownership appears to reside with individuals who have a long history with the company. This can be a positive factor, as it often aligns the franchisor's long-term goals with those of its franchisees, rather than prioritizing short-term investor returns.

Potential Mitigations

• It is still prudent to ask the franchisor about their long-term ownership plans and succession strategy.
• Your attorney can review the 'Assignment' clause in the Franchise Agreement to understand the franchisor's rights to sell the system in the future.
• A business advisor can help you understand the potential implications of any future change in ownership.

Explanation

This risk was not identified in the FDD package. Item 1 explicitly states that the franchisor, Express Services, Inc. (ESI), does not have a parent company. The disclosure appears to be clear regarding the corporate structure, presenting ESI as the primary entity with which you would be contracting.

Potential Mitigations

• Your attorney can verify the corporate structure and confirm the absence of a parent company through public records searches.
• An accountant's review of the financial statements in Item 21 can provide further assurance about the franchisor's standalone financial capacity.
• Ask the franchisor to confirm in writing that there are no parent entities whose financial condition is material to the franchise system's health.

Explanation

This risk was not identified, as Item 1 clearly states that the franchisor has no predecessor companies. This means the historical information presented in the FDD, such as litigation (Item 3), bankruptcy (Item 4), and franchisee turnover (Item 20), pertains directly to the current franchising entity, which provides for clearer due diligence.

Potential Mitigations

• It is still valuable to discuss the franchisor's long operational history with current franchisees to gather historical context.
• Your business advisor can help research the company's public reputation and history.
• Your attorney can confirm there are no undisclosed predecessor issues based on their review of the FDD.