Explanation

The franchisor, FUSA Franchisor SPV LLC (FUSA), is a subsidiary whose performance is guaranteed by its parent, Driven Systems LLC. The provided audited financial statements for the guarantor show it is profitable and has a positive net worth. Therefore, while the franchisor itself is a special purpose vehicle, its financial backing appears stable, mitigating the typical risks associated with a franchisor's potential inability to provide support or meet its obligations to you.

Potential Mitigations

• Your accountant should review the financial statements of both the franchisor and the guarantor, paying close attention to any 'going concern' notes or significant liabilities.
• Understanding the terms and enforceability of the parent company's guarantee is crucial, a task for which your attorney's review is essential.
• A business advisor can help you assess if the franchisor's financial health supports long-term brand growth and system investment.

Explanation

The franchisor entity, FUSA, was formed in 2020. However, it is part of the large, publicly-traded Driven Brands system, and the Fix Auto brand has a longer operating history through predecessors. While the franchisor entity itself is relatively new, the backing of an experienced, established parent company mitigates many of the risks typically associated with an unproven franchise system, such as a lack of established operational procedures or brand recognition.

Potential Mitigations

• Your attorney should review the history of the brand under its predecessors, as detailed in Item 1, for any inherited issues.
• Engaging a business advisor to research the performance of other brands under the Driven Brands umbrella can provide insight into the parent company's management style.
• You should speak with franchisees who have been with the system through the transition to FUSA's ownership to understand any changes.

Explanation

This risk was not identified in the FDD Package. A fad business is one that capitalizes on a short-term trend without long-term consumer demand. Assessing whether a franchise is a sustainable business or a potential fad is a crucial part of due diligence, as franchise agreements are long-term commitments that can outlast fleeting consumer interest, leaving you with a worthless business.

Potential Mitigations

• Engaging a business advisor to conduct independent market research can help determine the long-term demand for the franchise's products or services.
• You should review the franchisor’s history of innovation and plans for future development to gauge its ability to adapt to changing market trends.
• An accountant can help you model the financial viability of the business under various market scenarios, including declining consumer interest.

Explanation

Item 2 lists the executive team, who are largely part of the broader Driven Brands corporate structure. While the franchisor entity itself is recent, the management team has extensive experience within the automotive and franchising industries through their roles at Driven Brands and its other affiliated franchise systems. This experience mitigates the risk of operational and strategic errors often associated with an inexperienced management team.

Potential Mitigations

• A business advisor can help you research the backgrounds and track records of the key executives listed in Item 2.
• When speaking with existing franchisees, it is useful to inquire about their direct experiences and the quality of support from the management team.
• Your attorney should review any management changes that have occurred since the FDD was issued.

Explanation

The franchisor's parent company, Driven Systems LLC, provides a guarantee of FUSA's performance, and its audited financial statements are included in the FDD. The FDD also discloses the ultimate parent, Driven Brands, Inc., and provides its financial statements as well. This level of transparency meets disclosure requirements and allows for a more complete assessment of the financial stability of the entities backing your franchise.

Potential Mitigations

• Having your accountant review the financial statements for both the guarantor and the ultimate parent company is a crucial step.
• Your attorney should analyze the specific terms of the Guarantee of Performance (Exhibit K) to confirm the scope of the parent's obligations.
• You should ask the franchisor to clarify the relationship and flow of funds between the various parent entities and the franchisor.