Explanation

The franchisor's audited financial statements for 2023 show a net income of over $2.8 million and substantial member equity of nearly $16 million. Based on the provided financials, the company appears profitable and financially stable, and this specific risk was not identified.

Potential Mitigations

• It is still advisable for your accountant to conduct a thorough review of the complete, multi-year audited financial statements, including all footnotes, to confirm financial health.
• A discussion with your financial advisor about the franchisor's cash flow and debt levels can provide additional insight into their stability.
• Your attorney can help you understand any financial performance covenants or guarantees mentioned in the franchise documents.

Explanation

This risk was not identified. In 2023, the number of franchised outlets decreased while company-owned units grew, indicating the system is not undergoing rapid franchise expansion that might strain support services. Rapid growth can sometimes mean a franchisor's support systems, like training and field support, can't keep pace, negatively impacting franchisee performance.

Potential Mitigations

• A business advisor can help evaluate the franchisor's existing support infrastructure relative to its current size and any future growth plans.
• In discussions with current franchisees, it is useful to ask about the quality and timeliness of the support they currently receive.
• Your accountant can review financial statements to determine if the franchisor is reinvesting profits into support systems.

Explanation

This risk is not present. The franchise system, through its predecessor, has been in operation since 2013. A new or unproven system carries higher risks because the business model, brand recognition, and franchisor support structures have not been tested over time, which can lead to higher failure rates for early franchisees.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the maturity of the brand and its operating systems.
• It's wise to ask your attorney to scrutinize the business experience of the management team listed in Item 2.
• An accountant can analyze the financial statements for signs of stability that often come with a more mature system.

Explanation

This risk was not identified. The business of mobile, on-site commercial vehicle cleaning is an established industrial service sector, not a temporary consumer trend. Investing in a fad business is risky because customer demand may disappear, leaving you with franchise obligations for a business that is no longer viable.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any industry.
• Reviewing the franchisor's history of innovation and service development in Item 11 with a business consultant can reveal their focus on long-term relevance.
• Your financial advisor can help you assess the business model's resilience to economic shifts and changing trends.

Explanation

This risk was not identified. Item 2 shows that the management team has extensive, long-term experience in the truck washing industry, with several key personnel having been with the parent company since the 1970s and 1980s. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• Engaging a business advisor to help you vet the backgrounds of the franchisor's key executives is always a prudent step.
• Your attorney can help frame questions for current franchisees about their direct experiences with the management team's competence and support.
• It's beneficial to research the public reputation and track record of the key leaders in the franchise system.

Explanation

The franchisor does not appear to be owned by a private equity firm; its parent is a long-standing operating company in the same industry. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, potentially leading to increased fees or reduced support.

Potential Mitigations

• A business advisor can help investigate the ownership structure of any franchisor to identify potential private equity involvement.
• If a PE firm is involved, your attorney can help you research its reputation and track record with other franchise brands.
• Discussing any changes in franchisor behavior post-acquisition with current franchisees can provide valuable insight.

Explanation

This risk was not identified, as Item 1 clearly discloses the parent company, Kept Companies, Inc. A failure to disclose a parent company can be a significant issue, as it may obscure the ultimate control structure and financial backing of the franchisor, preventing a full risk assessment.

Potential Mitigations

• Your attorney should always verify that the franchisor has fully disclosed its parent companies and affiliates as required in Item 1.
• If a parent company exists and provides a guarantee, an accountant should ensure its financial statements are also provided and reviewed.
• A business advisor can help you research the relationship and potential influence of a parent company on the franchise system.