Explanation

This risk was not identified. The financial statements in Item 21 and Exhibit F show The Filta Group Inc. (Filta) to be financially healthy, with consistent revenues, strong net income, and positive stockholder's equity. A financially stable franchisor is better positioned to provide ongoing support and grow the brand.

Potential Mitigations

• A franchise-oriented accountant should review the franchisor's financial statements for the past three years to independently assess financial health.
• Understanding the key financial metrics, such as liquidity, profitability, and debt, with your financial advisor is a crucial due diligence step.
• Your accountant can help you analyze the notes to the financial statements, which often contain important details not apparent on the statements themselves.

Explanation

This risk was not identified. Item 20 data for 2024 shows a very low rate of franchisee terminations and cessations relative to the system's size. This suggests a potentially stable and satisfied franchisee base. High turnover can be a significant red flag indicating systemic issues within a franchise.

Potential Mitigations

• You should still contact a significant number of former franchisees listed in the FDD exhibits to understand their reasons for leaving the system.
• Analyzing the franchisee turnover data in Item 20 over the full three-year period with your accountant can reveal any emerging trends.
• Your attorney can help you formulate insightful questions for former franchisees to uncover any potential issues not visible in the data.

Explanation

This risk was not identified. The franchisee growth data presented in Item 20 reflects a pattern of steady and controlled expansion rather than explosive growth. While system growth is positive, unchecked rapid expansion can sometimes over-extend a franchisor's ability to provide adequate training and support to all franchisees.

Potential Mitigations

• In discussions with the franchisor, it's wise to ask about their future growth plans and how they intend to scale support systems accordingly.
• Engaging a business advisor to evaluate the franchisor's support infrastructure in relation to its size and growth rate can provide valuable insight.
• Speaking with franchisees who joined at different times can help you understand if support levels have remained consistent during periods of growth.

Explanation

This risk was not identified. FDD Item 1 indicates Filta began franchising in 2002 and Item 20 shows a large, established system. The business model and support systems appear to be well-developed. Investing in a new or unproven system can carry higher risks due to a lack of brand recognition and untested operations.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the maturity of the brand and its systems.
• It is always prudent to review the franchisor's history and length of time in business as part of your due diligence.
• An attorney can help you understand the protections available when investing in either a new or established franchise system.

Explanation

This risk was not identified. The franchise offers essential, recurring environmental and maintenance services to the commercial kitchen industry, a market with sustained demand. A business based on a temporary trend or fad carries the risk that its market could disappear, jeopardizing the long-term viability of your investment.

Potential Mitigations

• Engaging a business advisor to conduct independent market research can help validate the long-term demand for a franchise's products or services.
• It is important to assess whether a business model is based on a sustainable customer need or a potentially short-lived trend.
• Your financial advisor can help you evaluate a concept's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. Item 2 of the FDD shows that the franchisor's key executives possess extensive and long-term experience with the Filta brand and franchise system. Management inexperience can be a significant risk factor, potentially leading to strategic errors or insufficient support for franchisees.

Potential Mitigations

• It is always a good practice to research the backgrounds of the key executives listed in Item 2 with your business advisor.
• Asking current franchisees about their direct experiences with the management team can provide valuable, real-world insights.
• An attorney can help you assess if the management team's experience is relevant to both the industry and to managing a franchise network.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Franchise Brands, PLC. A failure to disclose a parent or controlling entity is a major red flag, as it can obscure the true ownership structure, financial backing, and potential risks associated with the franchise system.

Potential Mitigations

• Your attorney should always verify that the ownership structure disclosed in Item 1 is complete and clear.
• If a parent company is disclosed, your accountant should determine if the parent's financial statements are required and provided.
• A business advisor can help you research the parent company to understand its role and influence on the franchise.

Explanation

This risk was not identified. The FDD states in Item 1 that there are no predecessor companies requiring disclosure. In cases where a franchise system was acquired from a predecessor, it would be important to investigate that predecessor's history for any inherited issues, such as litigation or high franchisee failure rates.

Potential Mitigations

• Your attorney should confirm the predecessor history disclosed in Item 1 and investigate any entities mentioned.
• When a predecessor exists, it is wise to ask long-term franchisees about their experiences under the prior ownership.
• A business advisor can assist in researching the history of a brand, including any predecessor companies.

Explanation

This risk was not identified. Item 3 discloses a very limited number of lawsuits, which do not appear to establish a pattern of claims from franchisees alleging fraud, misrepresentation, or other systemic problems. A history of such litigation can be a serious warning sign regarding a franchisor's business practices.

Potential Mitigations

• It is crucial for your attorney to review any and all litigation disclosed in Item 3 to assess its nature and potential implications.
• You should ask the franchisor about any disclosed litigation to hear their perspective on the disputes.
• Speaking with current and former franchisees may provide additional context on any legal disputes within the system.