Explanation

This risk was not identified in the FDD Package. Item 20 data does not show a high rate of terminations, non-renewals, or other cessations of franchised outlets. A high turnover rate can be a primary indicator of systemic issues, such as franchisee unprofitability, dissatisfaction with support, or a flawed business model. It is a critical area for due diligence in any franchise system.

Potential Mitigations

• Your business advisor should still guide you in contacting a diverse group of current and former franchisees from the lists in Item 20 to discuss their experiences.
• An accountant can help you analyze the multi-year turnover rates presented in Item 20 to confirm system stability.
• When speaking with franchisees, your attorney can help you ask specific questions about their satisfaction and profitability to validate the data.

Explanation

This risk was not identified in the FDD Package. The growth of the franchise system, as detailed in Item 20, appears to be moderate and controlled rather than excessively rapid. While growth is generally positive, explosive growth can sometimes strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees, potentially diluting brand value and franchisee support.

Potential Mitigations

• A business advisor can help you evaluate the franchisor's infrastructure and staffing in relation to its growth rate to ensure it can sustain its support obligations.
• Discuss the quality and responsiveness of franchisor support with a range of new and established franchisees.
• Your accountant can review the financials in Item 21 to assess if the franchisor is reinvesting sufficiently to support system growth.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that the franchise has been offered since 2005, with predecessor history dating to 2001. This is a mature and well-established system. Investing in a new or unproven franchise system can carry higher risks, including the lack of an established brand, unrefined operating systems, and a smaller support network.

Potential Mitigations

• A business advisor can help you verify the operating history and experience of any franchise system you consider.
• Your attorney should review the business experience of the management team as described in Item 2.
• Always have an accountant review the financial statements in Item 21 for signs of stability and a proven financial track record.

Explanation

This risk was not identified in the FDD Package. The business model, which focuses on retail haircutting and barbering services, is a long-standing and staple industry, not a temporary trend. Investing in a business based on a fad can be risky, as consumer interest may decline, potentially leaving you with a worthless business and ongoing contractual obligations long after the trend has passed.

Potential Mitigations

• Your business advisor can help you research the long-term market demand and sustainability of any industry before you invest.
• Review Item 1 of the FDD with your attorney to understand the nature of the business and its market.
• An accountant can help you model the financial viability of the business under different market conditions.

Explanation

This risk was not identified in the FDD Package. Item 2 details a management team with extensive, long-term experience within the company and the hair care industry, with most key executives having been with the brand since its inception in 2005. Inexperienced leadership can pose a risk to a franchise system, potentially leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• Your business advisor can help you vet the backgrounds of the key executives listed in Item 2 for any franchise you are considering.
• You should discuss the management team's reputation and effectiveness with current and former franchisees.
• An attorney can help you understand the roles and responsibilities of the management team as outlined in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is part of a holding company structure that appears to be controlled by its founders, with no mention of private equity ownership. While not always negative, private equity ownership can introduce risks related to a focus on short-term returns over the long-term health of the brand and its franchisees.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor, which is disclosed in Item 1.
• If a franchisor is owned by a PE firm, your attorney can help you investigate the firm's track record with other franchise systems.
• Discuss any changes in operations or support since an ownership change with existing franchisees.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly discloses the parent company, Floyd's 99 Holdings, LLC. Failing to disclose a parent company or its financial statements, when required, can obscure a complete picture of the franchise system's financial health and control structure. It is important for a franchisee to understand the full corporate structure they are joining.

Potential Mitigations

• Your attorney should verify that the ownership structure described in Item 1 is complete and that all necessary parent or affiliate disclosures have been made.
• If a parent company guarantees the franchisor's obligations, your accountant should ensure the parent's financial statements are provided and reviewed.
• A business advisor can help you understand the operational implications of the parent company's role in the system.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses a straightforward corporate history without indicating any significant issues inherited from a predecessor. A troubled history with a predecessor entity, such as prior bankruptcies or significant litigation, could signal underlying problems that may still affect the current franchise system. A clear understanding of the system's lineage is important.

Potential Mitigations

• Your attorney should always carefully review the predecessor disclosures in Items 1, 3, and 4 of any FDD.
• If a system has a complex history with predecessors, a business advisor can help you conduct independent research into the predecessor's reputation.
• Discussing the system's history with long-term franchisees can provide valuable context.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses only one lawsuit, which was settled for a nuisance value and does not suggest a pattern of franchisee disputes or franchisor misconduct. A pattern of litigation, especially claims of fraud or misrepresentation brought by other franchisees, can be a major red flag indicating systemic problems within a franchise.

Potential Mitigations

• It is crucial to have your attorney carefully review any and all litigation disclosed in Item 3 of an FDD.
• Your business advisor can help you understand the context of any legal disputes by speaking with franchisees involved.
• Treat a history of multiple lawsuits alleging fraud as a serious warning sign and discuss the implications with your attorney.