Explanation

This risk was not identified. The FDD package includes audited financial statements for the franchisor's parent company, Neighborly Assetco LLC, which also guarantees the franchisor's performance. These financials show significant assets, positive net worth, and profitability, indicating financial stability. While the managing entity shows a net loss driven by non-cash charges, the parent guarantee provides substantial backing. A strong financial position is important for ensuring long-term support and system investment.

Potential Mitigations

• It is still prudent to have an experienced franchise accountant review the complete financial statements, including all footnotes and the auditor's report.
• Understanding the parent company guarantee with your attorney is important to assess the real source of financial backing for the franchisor's obligations.
• Your business advisor can help you evaluate whether the franchisor's financial health supports its plans for system growth and support.

Explanation

This risk was not identified based on a review of the data in Item 20. The franchisee turnover rate appears low, with a combined total of 10 terminations and cessations in 2024 from a base of 234 outlets. The system has also shown consistent net growth over the past three years. Low turnover can suggest franchisee satisfaction and a viable business model, which are positive indicators for a prospective owner.

Potential Mitigations

• You should still contact a significant number of current and former franchisees listed in Item 20 to confirm the reasons for any departures.
• Engaging a business advisor to compare the system's turnover rates with available industry benchmarks can provide additional context.
• An attorney can help you formulate specific questions for the franchisor regarding any franchisee departures that seem concerning.

Explanation

This risk was not identified. The data in Item 20 shows a pattern of steady, manageable growth over the past three years, rather than rapid expansion that might strain support systems. This paced growth suggests the franchisor can likely maintain adequate support, training, and resources for its new and existing franchisees. A stable growth rate is generally a positive sign for the health of a franchise system.

Potential Mitigations

• It is wise to ask the franchisor about their capacity and plans for scaling their support infrastructure to match future growth.
• A business advisor can help you assess if the current level of support, as described by existing franchisees, seems adequate for the system's size.
• Your attorney can review the franchisor's contractual obligations for support to ensure they are clearly defined.

Explanation

This risk was not identified. Item 1 indicates the franchise system has been operating since 2007, providing it with a long operational history. The brand is part of Neighborly, a large and experienced multi-brand franchisor. An established system with experienced management typically offers more developed operational processes, brand recognition, and a proven business model, which can reduce risks for a new franchisee.

Potential Mitigations

• A business advisor can help you research the brand's reputation and history within the painting industry.
• You should still speak with a wide range of franchisees, both new and established, to gauge the effectiveness of the business model over time.
• Reviewing the franchisor's historical litigation and turnover data in Items 3 and 20 with your attorney can provide further confidence.

Explanation

This risk was not identified. The franchise operates in the professional painting services industry, which is a long-established and fundamental part of the home and commercial services market. This is not a business model based on a fleeting trend or fad. Investing in a business with sustained, long-term demand is generally less risky than investing in a concept that may have a short-lived appeal.

Potential Mitigations

• A business advisor can help you conduct local market research to confirm sustained demand for painting services in your area.
• It is still important to assess the brand's specific competitive advantages within this established industry.
• Discussing long-term market trends with your financial advisor can help validate the business model's durability.

Explanation

This risk was not identified. The executive team described in Item 2 possesses extensive experience in franchising and related industries with major companies like Neighborly, The UPS Store, and Yum Brands. An experienced management team is a positive factor, as it suggests the ability to provide effective support, make sound strategic decisions, and navigate the complexities of managing a large franchise system.

Potential Mitigations

• It is still beneficial to discuss the management team's accessibility and responsiveness with current franchisees.
• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• Asking the franchisor about management's long-term vision for the brand can provide valuable insight.

Explanation

This risk was not identified. The FDD's Item 1 provides a detailed corporate ownership structure, including all relevant parent and affiliate companies up to the ultimate private equity owner. Furthermore, Item 21 provides audited financial statements for the parent guarantor. This level of transparency is important because it allows you and your advisors to assess the financial stability of the entire organization supporting the franchise.

Potential Mitigations

• An attorney can help confirm that the provided parent company guarantee is legally sound and enforceable.
• Having an accountant review the financials of all disclosed entities provides a complete picture of the system's financial health.
• It is still important to understand the relationships between the various entities and how they might affect your franchise.

Explanation

A predecessor entity had a regulatory action in Illinois in 2010 for selling a franchise without being registered. This issue was resolved with a consent judgment and a small penalty over a decade ago. While past regulatory issues warrant attention, the age of this event and subsequent changes in ownership and management suggest it may have limited relevance to the franchisor's current compliance practices.

Potential Mitigations

• Discussing the franchisor's current franchise sales and compliance processes with your attorney can provide reassurance.
• Questioning current franchisees about their sales and disclosure experience is a practical due diligence step.
• Your attorney can verify the franchisor's current registration status in your state.

Explanation

This risk was not identified. Item 3 discloses three lawsuits initiated by the franchisor against franchisees in 2024 to collect fees, which is not an unusually high number for a system of this size. There is no disclosed pattern of litigation filed by franchisees alleging fraud, misrepresentation, or breach of contract. A lack of such litigation is generally a positive indicator of system health and franchisee relations.

Potential Mitigations

• An attorney can still review the specifics of the disclosed litigation to understand the context and typical outcomes.
• It is wise to ask current franchisees about their perception of the franchisor's approach to resolving disputes.
• A business advisor can help you assess whether the number and type of lawsuits are typical for a franchise system of this size.