Explanation

This risk was not identified in the FDD Package. The franchisor, FCBB, has been offering franchises since 2005 and its key management has extensive experience in the business brokerage industry. An unproven system can carry higher risks, such as having undeveloped support structures, minimal brand recognition, and a business model that has not been validated over time, but that does not appear to be the case here.

Potential Mitigations

• As a general practice, a business advisor can help you investigate the history and track record of any franchise system you consider.
• Your accountant should always be tasked with reviewing a franchisor's financial statements to assess its stability and operating history.
• An attorney can help you understand any disclosed risks associated with a new or emerging franchise concept.

Explanation

The franchisor operates in the business brokerage industry, which is a professional service. This type of business is not typically associated with short-lived fads. Success in this field generally depends on economic cycles, networking, and professional skill rather than fleeting consumer trends. Therefore, the risk of the business model being a fad appears low.

Potential Mitigations

• Engaging a business advisor to research the long-term stability and economic trends of the business brokerage industry is a prudent step.
• Discuss the business model's resilience to economic shifts and its long-term market demand with your financial advisor.
• Your attorney can help you understand the long-term commitments in the Franchise Agreement, regardless of market trends.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the key executives of FCBB, including the CEO and President, have been with the company since its inception in 2005 and have over three decades of experience in the business brokerage industry. Inexperienced management can be a significant risk, but the leadership team here appears to have substantial relevant experience in both the industry and in franchising.

Potential Mitigations

• It is always a good practice to have a business advisor help you research the backgrounds of the key management team for any franchise.
• When speaking with current franchisees, you should inquire about their perception of the management team's competence and leadership.
• Your attorney can help you understand the franchisor's obligations for providing support, which often reflects management's experience.

Explanation

This risk was not identified in the FDD Package. FDD Item 1 indicates that FCBB is owned by JLN Enterprises, LLC, which does not appear to be a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the franchise system. However, that specific risk factor does not seem to be present in this case.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor to understand its potential impact on the system.
• Your attorney should always review any clauses in the Franchise Agreement related to the sale or transfer of the franchise system itself.
• When interviewing franchisees, asking about any changes in system focus or support levels over time can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. FCBB discloses that it is owned by JLN Enterprises, LLC. However, the franchisor's financial statements are provided and audited, and there is no indication that the parent company's financials are required for a complete risk assessment or that the parent is providing a financial guarantee. Therefore, the risk of non-disclosure of a critical parent entity does not appear to be present.

Potential Mitigations

• Your attorney can help verify the corporate structure of a franchisor to ensure all relevant parent companies are disclosed.
• If a parent company guarantees the franchisor's performance, an accountant should review the parent's financial statements.
• A business advisor can help assess the relationship between a franchisor and its parent to identify potential risks or dependencies.

Explanation

This risk was not identified in the FDD Package. In Item 1, the franchisor explicitly states, “We do not have a predecessor.” Therefore, there are no inherited issues from a prior entity to assess. When a franchisor has a predecessor, it is important to scrutinize that entity's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could carry over to the new company.

Potential Mitigations

• As a standard due diligence step, your attorney should always confirm whether a franchisor has any predecessors listed in Item 1.
• If a predecessor exists, a business advisor can help you research its history and reputation.
• Asking long-tenured franchisees about their experiences under any previous ownership is a valuable source of information.

Explanation

This risk was not identified in the FDD Package. FDD Item 3 states, “No litigation is required to be disclosed in this Item.” This indicates the absence of a recent history of material lawsuits involving the franchisor, its predecessors, or key personnel related to fraud, franchise law violations, or other significant matters. A pattern of such litigation would be a serious concern.

Potential Mitigations

• It is wise to have your attorney review the litigation disclosures in any FDD to understand their potential significance.
• Independent online searches for news articles or franchisee complaints can sometimes reveal disputes not required to be disclosed in Item 3.
• You should always ask current and former franchisees about any disputes they may have had with the franchisor.