Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a net decline in the number of franchise units over the last two years, which is the opposite of rapid growth. A franchisor expanding too quickly can strain its ability to provide adequate support to new and existing franchisees.

Potential Mitigations

• An accountant can help you review a franchisor's financial statements to assess if they have the capital and staff to support their stated growth.
• Engaging a business advisor to question current franchisees about the quality and timeliness of support can reveal if a system is overstretched.
• Your attorney should review the franchisor's obligations in Item 11 to ensure support commitments are specific and not overly discretionary.

Explanation

This risk was not identified in the FDD package. FFC has been franchising since 2004, as stated in Item 1. Therefore, it is an established system, not a new or unproven one. Investing in a new franchise system carries higher risks due to the lack of a proven track record, brand recognition, and developed support systems.

Potential Mitigations

• When evaluating a newer system, it is wise to have your attorney scrutinize the business and franchising experience of its management team in Item 2.
• A business advisor can help assess the viability and capitalization of a new franchise concept.
• An accountant should review the financials of any new franchisor to determine if it is sufficiently capitalized to support its initial growth.

Explanation

This risk was not identified in the FDD package. The business model, which focuses on financial services like check cashing and money transfers, is an established industry and does not appear to be based on a short-term trend or fad. Fad-based businesses can pose a significant risk, as their long-term viability may be uncertain once consumer interest diminishes.

Potential Mitigations

• Before investing, you should always conduct market research with a business advisor to assess the long-term consumer demand for a franchise's products or services.
• Your accountant can help evaluate the business model's resilience to economic shifts and changing consumer tastes.
• Discuss the franchisor's plans for innovation and adaptation with your attorney to ensure the business is not reliant on a single, fleeting trend.

Explanation

This risk was not identified in the FDD package. The executive biographies in Item 2 indicate that the key management personnel have substantial experience, with several, including the CEO, having been with the company since its inception in 2004. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the franchisor's key executives listed in Item 2.
• Speaking with current franchisees can provide valuable insight into the competence and effectiveness of the management team.
• Your attorney can help you understand the management team's experience in both the specific industry and in franchising.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially affecting franchisee support and fee structures.

Potential Mitigations

• Should you encounter a PE-owned franchisor, your business advisor should research the firm's history with other franchise brands.
• It is important to discuss with your attorney how a potential sale of the franchise system by a PE firm could impact your rights.
• Your accountant can analyze financials to see if cost-cutting in franchisee support has occurred following a PE acquisition.

Explanation

This risk was not identified in the FDD package. FFC discloses its parent company, Family Financial Centers, Inc., in Item 1. The FDD provides audited financial statements for the franchisor entity itself. Failure to disclose a parent company or provide its financials when it guarantees the franchisor's performance can obscure the true financial stability of the system.

Potential Mitigations

• Your attorney should verify that if a parent company's guarantee is offered, their financial statements are included in Item 21 as required.
• An accountant can help you assess the financial strength of a parent company and the real value of any performance guarantee it provides.
• When a franchisor is a small subsidiary, a business advisor can help investigate the stability and commitment of the parent organization.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that FFC has no predecessors. When a franchisor has predecessors, it is important to review their history for any signs of trouble, such as litigation or bankruptcy, as these could indicate underlying problems with the business system that may have been inherited.

Potential Mitigations

• For any franchise, your attorney should carefully review Item 1 for any mention of predecessors.
• If predecessors are listed, a business advisor can help you conduct independent research on their history and reputation.
• It's wise to ask long-term franchisees about their experience under any previous ownership.

Explanation

This risk was not identified in the FDD package. Item 3 states, “No litigation is required to be disclosed in this Item.” A pattern of litigation, particularly lawsuits initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems within a franchise.

Potential Mitigations

• It's always recommended to have your attorney review Item 3 to understand the nature of any disclosed litigation.
• A business advisor can help you investigate the context of any lawsuits by speaking with current and former franchisees.
• Your accountant can help assess the potential financial impact on the franchisor of any significant pending litigation.