Explanation

The audited financial statements for the parent company, Propelled Brands Franchising, LLC (Propelled Brands), show significant revenue, positive net income, and substantial net worth for 2023 and 2024. While net income declined in 2024 despite revenue growth due to acquisition-related expenses, the company appears financially stable and is growing. The financial statements do not contain any 'going concern' notes from the auditor, which is a positive indicator of financial health.

Potential Mitigations

• An accountant should review the consolidated financial statements, including the balance sheet, income statement, and statement of cash flows, to form an independent opinion of the franchisor's financial health.
• Discuss the recent decline in net income with your financial advisor to understand the impact of acquisitions on profitability.
• It is wise to ask your attorney to verify if any state has required a bond or escrow due to financial performance.

Explanation

This risk was not identified. The data in Item 20, Table 3 shows a very low number of terminations, non-renewals, and other cessations over the past three years, with a calculated annual churn rate under 1.2%. This indicates a stable and growing franchise system. High franchisee turnover is a major red flag, as it often suggests systemic problems such as unprofitability or poor franchisor support, but that does not appear to be the case here.

Potential Mitigations

• Your business advisor should still review the Item 20 tables with you to understand the system's growth trajectory and historical stability.
• As a best practice, speaking with a diverse group of current and former franchisees can provide qualitative context to the positive numbers.
• An accountant can help you calculate and benchmark the turnover rates against any available industry data for context.

Explanation

This risk was not identified. Item 20 shows steady and consistent, but not excessively rapid, growth in the number of franchised units over the past three years. This pace of growth suggests the franchisor, FASTSIGNS International, Inc. (FASTSIGNS), is likely able to scale its support systems adequately. Uncontrolled, rapid growth can strain a franchisor's ability to provide necessary training and support, but the disclosed growth rate does not indicate this is a current issue.

Potential Mitigations

• During your conversations with existing franchisees, it is useful to ask about the quality and timeliness of the support they currently receive.
• Inquire with your business advisor about the franchisor’s infrastructure for supporting its franchisees to ensure it is robust.
• Your accountant can review the franchisor's financials in Item 21 to assess if they are reinvesting in support systems to match growth.

Explanation

This risk was not identified. FASTSIGNS has been franchising since 1986 and has a large, established system of over 700 units in the U.S. Item 2 shows a management team with extensive experience in franchising and the relevant industry. While it is owned by private equity, the system itself is mature and proven. An unproven system carries higher risks related to brand recognition, operational support, and long-term viability, which are not primary concerns here.

Potential Mitigations

• A business advisor can help you analyze the franchisor's long history and the extensive experience of its management team as detailed in Item 2.
• Speaking with long-term franchisees can provide insight into the system's evolution and stability over time.
• Your accountant should review the multi-year financial data to confirm the historical stability of the business model.

Explanation

This risk was not identified. The sign and graphics industry is a mature and established business-to-business sector. FASTSIGNS has a long operational history since 1986, indicating sustained demand for its services rather than being a temporary fad. A business based on a short-term trend carries a high risk of failure once consumer interest fades, which does not appear to be the case with this established business model.

Potential Mitigations

• It is still worthwhile to conduct your own market research with a business advisor to assess the long-term demand for these services in your specific area.
• Inquire about the franchisor's research and development efforts to ensure the brand stays current with new technologies and market trends.
• Discuss the industry's resilience to economic cycles with your financial advisor to understand potential vulnerabilities.

Explanation

This risk was not identified. The executive biographies in Item 2 detail a management team with many years of direct experience in the franchising industry and in the specific business sector. For example, the CEO has been with the company since 2009 and has been in franchising since 1985. Inexperienced management can lead to poor support and strategic errors, but the extensive and relevant experience of the leadership team appears to be a significant strength for this franchise system.

Potential Mitigations

• As part of due diligence, it is still beneficial to discuss your impressions of the management team's competence with current franchisees.
• You may consider researching the professional reputation of key executives with the help of a business advisor.
• Your attorney can help you frame questions to the franchisor about the management team's philosophy and vision for the brand.

Explanation

This risk was not identified. The franchisor, FASTSIGNS International, Inc., is a subsidiary of Propelled Brands Franchising, LLC. The FDD properly discloses this relationship and provides the audited consolidated financial statements for the parent, Propelled Brands. Furthermore, Propelled Brands provides a full performance guarantee for FASTSIGNS' obligations. Failing to disclose a parent company or provide its financials when necessary can hide significant financial or operational risks from a prospective franchisee.

Potential Mitigations

• An accountant should review the provided parent company financial statements to assess the overall financial health of the entire organization.
• Your attorney should examine the wording of the parent company guarantee to ensure it is comprehensive and unconditional.
• It is still prudent to ask the franchisor about the operational relationship between the parent and the FASTSIGNS brand.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the franchisor's history and indicates it has not acquired the system from a predecessor. Issues can arise when a new franchisor acquires a system and its history of litigation, bankruptcy, or franchisee turnover is not fully transparent. Since FASTSIGNS has a long, direct operational history as the franchisor, this particular risk is not present.

Potential Mitigations

• Your attorney should always confirm the franchisor's corporate history as disclosed in Item 1.
• For any franchise, it is good practice to ask long-tenured franchisees about the company's history and any past ownership changes.
• A business advisor can help you perform public record searches to verify the information about the company's history.