Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support. If a franchisor expands too quickly without scaling its support infrastructure, new franchisees may experience delays in training, site selection assistance, and operational guidance. This can negatively impact a franchisee's opening and long-term success. Careful analysis of growth in Item 20 versus resources in Item 21 is key.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support staff and infrastructure are sufficient for the current and projected number of franchisees.
• Consult with your accountant to review the franchisor's financial statements for evidence of investment in franchisee support systems.
• It is wise to ask existing franchisees about the quality and timeliness of the support they currently receive from the franchisor.

Explanation

This risk was not identified in the FDD package, as Flowerama has been franchising since 1972 and is part of the large, established 1-800-Flowers.com system. An unproven franchise system presents higher risks because its business model, brand recognition, and support structures are not yet time-tested. New franchisors may lack the experience and resources to adequately support franchisees, leading to a higher potential for business failure for all parties involved.

Potential Mitigations

• If considering a new franchise system, your attorney should scrutinize the experience of the management team in both the industry and in franchising.
• A thorough review of the new franchisor's capitalization with your accountant is essential to ensure it has sufficient funds to support its growth.
• A business advisor can help you conduct extensive due diligence on the viability of the business concept itself.

Explanation

This risk was not prominently identified. A fad business is one that enjoys rapid growth due to a short-term trend but lacks long-term consumer demand. Investing in a fad carries the risk that your business could become obsolete once public interest wanes, leaving you with a long-term franchise contract for an unpopular concept. Assessing the long-term viability of the core product or service, independent of current trends, is a crucial part of due diligence.

Potential Mitigations

• Your business advisor should help you research the industry to determine if there is stable, long-term demand for the products or services offered.
• An analysis of the franchisor's plans for research and development with your financial advisor can reveal their commitment to evolving the brand.
• Speaking with long-standing franchisees about how the business has adapted to market changes can provide valuable insight.

Explanation

This risk was not identified, as the management team disclosed in Item 2 appears to have extensive experience within the floral, gift, and franchise industries, largely through their roles at the parent company, 1-800-Flowers.com, Inc. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems, which can jeopardize the success of the entire franchise network.

Potential Mitigations

• Before investing in any franchise, it's wise to have your business advisor research the backgrounds of the key executives listed in Item 2.
• Franchise attorneys can help you assess whether management's experience is relevant to the specific challenges of a franchise system.
• Speaking with current franchisees is a practical way to gauge the competence and effectiveness of the franchisor's management team.

Explanation

This risk was not identified in the FDD package. A franchisor's predecessor is a prior entity from which it acquired the business. If a franchisor has a predecessor, it is important to review their history for issues like bankruptcy, litigation, or high franchisee failure rates, as these problems could be inherited by the current franchisor. Inadequate disclosure about a predecessor can hide systemic issues and prevent you from having a complete picture of the franchise's history.

Potential Mitigations

• Your attorney should carefully review Item 1 of the FDD for any mention of a predecessor and analyze related disclosures in Items 3 and 4.
• A business advisor can help you research the history of any predecessor company for signs of trouble.
• It is crucial to ask long-tenured franchisees about their experience under any previous ownership.