Explanation

This specific risk was not identified in the FDD Package, as there are no existing or former franchisees reported in Item 20. This lack of history is itself a risk, reflecting an unproven system. High turnover is a critical red flag in established systems, often indicating issues with profitability, support, or the business model. You will be one of the first franchisees, without the benefit of learning from the experiences of a large franchisee base.

Potential Mitigations

• When a system matures, your attorney should help you monitor future FDDs to track franchisee turnover rates.
• A business advisor can help you assess the risks of joining a new system with no franchisee track record.
• Engage with the very first group of franchisees as they open to create a network for sharing experiences.

Explanation

This risk was not identified, as the system is new and not yet in a rapid growth phase. However, a new franchisor with limited financial resources, as seen in Item 21, could be pressured to sell franchises quickly to generate cash flow. This might strain its ability to provide adequate support if growth occurs. Monitoring the pace of new franchise sales against the franchisor's support capacity will be important for you as an early franchisee.

Potential Mitigations

• Your business advisor can help you assess if the franchisor's support infrastructure is scalable.
• Speaking with other early franchisees as the system grows can provide insight into the quality of support.
• An accountant should review future financial statements to see if the franchisor is investing in support systems.

Explanation

This risk was not identified. The business, offering sewing and design classes for children, falls within the established and growing market for children's enrichment and creative arts education. While subject to trends in activities, the core concept does not appear to be a short-term fad. Its long-term success will likely depend on quality of instruction and local market demand rather than a fleeting trend.

Potential Mitigations

• A business advisor can help you research the long-term demand for children's enrichment activities in your specific local market.
• Assess the business's ability to adapt its curriculum and offerings to evolving interests with your business advisor.
• Review the competitive landscape with your marketing advisor to understand the stability of similar businesses.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that The Fashion Class is owned or controlled by a private equity firm. The franchisor is a new limited liability company, and its financials reflect member contributions rather than institutional investment. Therefore, the specific risks associated with private equity ownership, such as a focus on short-term returns over system health, do not appear to be present here.

Potential Mitigations

• Your attorney should always confirm the ownership structure disclosed in Item 1 through public records.
• A business advisor can help you understand the different risks associated with various types of franchisor ownership structures.
• In any franchise, it is wise to have your accountant review financial statements for signs of financial pressure.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any predecessors for The Fashion Class Franchise LLC. The franchisor entity itself is new, and while it licenses marks from an affiliate, that affiliate has not previously offered franchises. Therefore, there is no predecessor history of litigation, bankruptcy, or franchisee turnover to conceal or analyze. The primary risk is the lack of any franchising history at all.

Potential Mitigations

• Your attorney should always verify the corporate history disclosed in Item 1.
• A business advisor can help you perform due diligence on the operating history of any affiliated companies mentioned in the FDD.
• It is wise to ask the franchisor directly about the full history of the brand and its affiliated companies.

Explanation

This risk was not identified in the FDD Package. Item 3 explicitly states that no litigation is required to be disclosed. This means there is no current pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation, nor is there a history of significant litigation initiated by the franchisor against franchisees. While this is a positive sign, it is also expected for a brand-new franchise system with no operating franchisees.

Potential Mitigations

• It is a good practice to have your attorney conduct an independent search for any litigation involving the franchisor or its principals.
• A business advisor can help you formulate questions for the franchisor regarding their approach to dispute resolution.
• Always review Item 3 carefully in any FDD, as a pattern of litigation can be a major red flag.