Explanation

This specific risk was not identified in the FDD package. Rapid system growth can be a concern if a franchisor's support infrastructure cannot keep pace. This may lead to a decline in the quality of training, site selection assistance, and ongoing operational support for franchisees, potentially harming the brand's reputation and individual unit performance. Item 20 data for JRE shows system shrinkage, not rapid growth.

Potential Mitigations

• A business advisor can help you analyze Item 20 data to assess the pace of system growth and compare it to the franchisor's stated support capabilities in Item 11.
• Interviewing a mix of new and established franchisees can provide insight into whether the franchisor's support has remained consistent as the system has evolved.
• Your accountant should review the franchisor’s financial statements in Item 21 to determine if they have allocated sufficient resources for franchisee support.

Explanation

This risk was not identified. JRE has been franchising since 1986, indicating it is an established system, not a new or unproven one. An unproven system presents higher risks as its business model, brand recognition, and support structures may be underdeveloped. You would face greater uncertainty regarding potential profitability and the franchisor's ability to provide effective, long-term support.

Potential Mitigations

• For any franchise, it is wise to have your attorney investigate the franchisor's history and the business experience of its management team as detailed in Items 1 and 2.
• A conversation with the earliest franchisees in the system can provide valuable perspective on the franchisor's evolution and long-term viability.
• Your accountant can help you evaluate the financial stability of even a mature franchisor by reviewing several years of financial statements.

Explanation

This specific risk was not identified. The jewelry and watch repair business is a long-established industry, not a recent trend. A 'fad' business carries the risk that consumer interest may decline quickly, potentially leaving you with a failing business while still being bound by a long-term franchise agreement. Assessing the long-term consumer demand for a product or service is a critical piece of due diligence.

Potential Mitigations

• You should conduct independent market research with a business advisor to assess the long-term demand and competitive landscape for the services offered.
• It is prudent to review the franchisor's history of innovation and system development in Item 11 to gauge its ability to adapt to market changes.
• Questioning existing franchisees about evolving customer trends and the franchisor's responsiveness can offer valuable insights.

Explanation

The FDD discloses the parent companies, JRE Holdings, Inc. and DK-JRE, LLC, and provides the audited consolidated financial statements for JRE Holdings, Inc. and its subsidiaries. This appears to meet disclosure requirements. Failing to disclose a parent company or provide its financial statements when required can obscure the true financial health and control structure of the franchise system, hiding significant risks from prospective franchisees.

Potential Mitigations

• Your accountant should always confirm that the financial statements provided are for the correct entity or consolidated group as described in Item 1.
• It is wise to have your attorney verify if any parent company guarantees the franchisor's obligations and, if so, that the parent's financials are included.
• Always ask your attorney to clarify the relationship and obligations between the franchisor and any parent companies mentioned.

Explanation

This risk was not identified, as Item 1 does not mention any predecessors. When a franchisor has predecessors, it is important to review their history for issues like litigation (Item 3), bankruptcy (Item 4), or high franchisee turnover. A franchisor might acquire the assets of a struggling system, and without proper disclosure of the predecessor's history, you may not be aware of inherited systemic problems.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and cross-reference with Items 3, 4, and 20 for any historical issues.
• If predecessors are listed, a business advisor can assist with conducting independent research on their business history and reputation.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable, firsthand insight.