Explanation

This risk was not identified in the FDD package. As a very new system that only began franchising in 2023, the data in Item 20 is limited. It shows one franchised unit was reacquired by the franchisor but no terminations or non-renewals. High franchisee turnover is a critical red flag in established systems, often indicating franchisee dissatisfaction or lack of profitability. The limited history here means this data provides minimal insight into long-term franchisee success.

Potential Mitigations

• Speaking with the franchisees listed in Item 20, including the one who no longer operates the location, is critical for due diligence.
• Your business advisor can help you ask franchisees targeted questions about their profitability and relationship with FFF LLC.
• Understanding the reasons for any transfers or reacquisitions should be a priority discussion with your attorney.

Explanation

This risk was not identified. Rapid system growth can strain a franchisor's ability to provide adequate support to new and existing franchisees. The Item 20 data for FFF LLC shows growth from zero to six franchised units over two years. For a new system, this appears to be a controlled growth rate rather than an explosive expansion that might overstretch its support capabilities. Therefore, the specific risks associated with excessively rapid growth are not present.

Potential Mitigations

• It is still wise to discuss FFF LLC's future growth plans and how they intend to scale support systems with your business advisor.
• Asking current franchisees about the current quality and responsiveness of franchisor support can provide valuable insight.
• Your accountant can review the franchisor's budget for support services in relation to its projected growth.

Explanation

This risk was not identified. The FDD describes a business operating in the health and fitness club industry. This is a large, established market with a long history of consumer demand. While specific fitness concepts can be trendy, the overall industry is not considered a short-term fad, suggesting a more stable underlying market for your services.

Potential Mitigations

• A business advisor can help you research the long-term trends within your specific local health and fitness market.
• It remains prudent to assess the specific concept's long-term appeal versus temporary fitness trends with a marketing professional.
• Your accountant can help you model financial performance based on conservative, long-term market assumptions.

Explanation

This risk was not identified. FDD Item 2 indicates that the key principals of FFF LLC have significant prior experience in the fitness industry, specifically in operating the affiliate-owned Fitness Factory locations since as early as 1998. This long-term, hands-on experience in the same business model is a positive factor, suggesting that management understands the operational aspects of the business you will be running.

Potential Mitigations

• You should still verify the management team's reputation and track record by speaking with current franchisees.
• A business advisor can help you assess how the management's past operational experience translates into effective franchisee support.
• Your attorney can still perform background checks on the key individuals listed in Item 2.

Explanation

This risk was not identified. The FDD does not indicate that FFF LLC is owned or controlled by a private equity firm. Ownership appears to rest with the individuals involved in managing the company. Therefore, risks often associated with private equity ownership, such as a focus on short-term returns over long-term system health, do not appear to be present here.

Potential Mitigations

• It is good practice to have your attorney confirm the ownership structure of the franchisor entity.
• You can ask the franchisor about their long-term vision for the company to gauge their commitment.
• A business advisor can help research the background of the individual owners disclosed in the FDD.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the existence of a parent company, Fitness Factory Management, LLC. While the parent's financial statements are not included, there is no indication that they are required under franchise regulations (e.g., the parent does not appear to guarantee the franchisor's obligations). The relationship and identity of the parent are disclosed.

Potential Mitigations

• Your accountant should assess the financial statements of FFF LLC on their own merit, noting the intercompany loans.
• Your attorney can clarify the legal relationship between the franchisor and its parent and how it might affect your agreement.
• During discussions with franchisees, you can ask about the role the parent company plays in the system.

Explanation

This risk was not identified in the FDD package. A predecessor is a company from which the franchisor acquired the main assets of the business. Item 1 of the FDD indicates that FFF LLC is a new entity and does not mention any predecessors. Therefore, risks associated with a hidden or troubled history from a prior version of the franchise system are not present.

Potential Mitigations

• Your attorney can confirm the corporate history of the franchisor entity to ensure there are no undisclosed predecessors.
• You can ask early franchisees about the history of the system as they understand it.
• Independent online research can sometimes reveal prior business names or structures related to the brand.

Explanation

This risk was not identified in the FDD package. Item 3, which requires the disclosure of certain types of litigation, states that there is no litigation that must be disclosed. The absence of a pattern of lawsuits, particularly claims of fraud or misrepresentation brought by other franchisees, is a positive indicator, though not a guarantee of future performance or conduct.

Potential Mitigations

• It is still prudent to ask current and former franchisees about any disputes they may have had, even if they did not result in litigation.
• Your attorney can conduct a public records search for litigation involving the franchisor or its principals that might not meet the threshold for disclosure.
• Understanding the dispute resolution process in Item 17 is important in case a future conflict arises.