Explanation

The data in Item 20 does not indicate unusually rapid growth in the number of franchised outlets. However, managing growth and ensuring adequate support is crucial for any franchise system's health. A franchisor expanding too quickly might stretch its resources, potentially leading to a decline in the quality of support, training, and operational guidance provided to all franchisees.

Potential Mitigations

• Engaging a business advisor to evaluate the franchisor's support infrastructure relative to its total system size (franchised and company-owned) is a wise precaution.
• Speaking with both new and established franchisees can provide insight into the consistency and quality of the support they receive.
• An accountant can help assess if the franchisor's financial statements show sufficient investment in support staff and resources.

Explanation

The business model of mobile, on-site commercial vehicle cleaning is well-established. However, any business's long-term success depends on sustained market demand and the ability to adapt to new technologies and client needs. If a business concept is too narrow or fails to evolve, it risks becoming obsolete, which could impact your investment regardless of your contractual obligations to the franchisor.

Potential Mitigations

• With your business advisor, research the long-term trends and competitive landscape of the commercial cleaning industry.
• Question the franchisor on its research and development plans to ensure the services remain competitive and in demand.
• Consider the system's resilience to economic shifts and changing environmental regulations with help from your financial advisor.

Explanation

This specific risk was not identified in the FDD package. Item 2 indicates that the key executives have extensive, long-term experience with the parent company, Kept Co., in the commercial cleaning and maintenance industry. Generally, however, inexperienced management can pose a significant risk, as they may lack the specific skills required to run a successful franchise system, provide adequate support, or make sound strategic decisions for the brand.

Potential Mitigations

• A thorough review of the executive team's background in Item 2 with a business advisor is always a crucial step in due diligence.
• Speaking with current franchisees provides firsthand insight into the quality and effectiveness of management's support and leadership.
• Your attorney can help you assess whether the management team's stated experience is relevant to the specific challenges of franchising.

Explanation

This risk was not identified as the franchisor does disclose its parent company, Kept Co. However, it's important to understand that if a franchisor is a thinly capitalized subsidiary, the financial health of the parent company becomes critical. Failure to provide a parent's financial statements, when required, can hide financial weaknesses that might jeopardize the franchisor’s ability to support you.

Potential Mitigations

• Your accountant should always verify that the financial disclosures are complete, including parent company financials if they guarantee the franchisor's performance.
• An attorney can help determine if the franchisor's structure necessitates the disclosure of parent company financials under franchise law.
• Understanding the full corporate structure with a business advisor is key to assessing the real financial backing of the franchise.

Explanation

The franchisor discloses that its predecessor was Fleet Clean Systems Incorporated, and that it acquired the system in 2018. While predecessor history is disclosed, it's important to understand that issues from a prior ownership structure, such as franchisee dissatisfaction or operational problems, can sometimes carry over. A clean slate under a new name does not erase the system's history.

Potential Mitigations

• Your attorney should carefully review all disclosures related to the predecessor in Items 1, 3, and 4.
• When speaking with long-term franchisees, ask about their experience under the previous ownership and any changes since the acquisition.
• A business advisor can help you research the predecessor's public track record for any signs of trouble.

Explanation

This risk was not identified, as Item 3 of the FDD states, "No litigation is required to be disclosed in this item." However, a pattern of litigation, especially lawsuits from franchisees alleging fraud or misrepresentation, is a significant red flag. It can indicate systemic problems in the franchisor's sales process, its business model, or its relationship with franchisees, suggesting a potentially contentious and difficult partnership.

Potential Mitigations

• Your attorney should always conduct an independent search for litigation involving the franchisor, as Item 3 disclosures can be narrow.
• Even without disclosed litigation, asking current and former franchisees about disputes is a key part of due diligence.
• A business advisor can help you understand that a litigious history often signals deeper problems within a franchise system.