Explanation

This specific risk was not identified in the FDD Package. FFL and its principals have been involved with the brand since its inception in 2001 and have been franchising since 2005. A new or unproven system can present higher risks due to untested business models, minimal brand recognition, or lack of experienced management. Evaluating the franchisor's history and the system's maturity is a crucial step in due diligence.

Potential Mitigations

• For any franchise, it is critical to have a business advisor help you research the franchisor's history and the business experience of its key leadership team.
• Speaking with the earliest franchisees in a system can provide valuable insight into how the franchisor has evolved and supported its partners over time.
• An accountant should review the financial statements to gauge the stability that comes with a more established track record.

Explanation

This specific risk was not identified in the FDD Package. The barbershop and haircutting industry is a well-established market rather than one based on a recent trend. However, all businesses face evolving consumer preferences. A business tied to a short-term fad carries the risk that demand could decline rapidly, leaving you with a long-term contractual obligation for a business with a shrinking customer base.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for the services offered.
• It is prudent to evaluate a company's plans for innovation and adaptation to stay relevant in a competitive market.
• Your financial advisor can help model the business's potential resilience to economic shifts and changing consumer tastes.

Explanation

This specific risk was not identified in the FDD Package. FFL's key principals, as detailed in Item 2, have extensive experience, with over 20 years in operating Floyd's 99 Shops and having offered franchises since 2005. Inexperienced management can be a significant risk, as it may lead to inadequate support, unproven systems, or poor strategic decisions that negatively impact franchisees.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you thoroughly vet the backgrounds of the key management team.
• Always speak with existing franchisees to get their direct feedback on the quality of management and the support they receive.
• An attorney can help you understand the contractual obligations the franchisor has for providing support, regardless of their experience level.

Explanation

This specific risk was not identified in the FDD Package. Item 1 indicates FFL is part of a group of affiliated companies under common ownership by its founders, not a private equity firm. When a franchisor is owned by a private equity firm, there may be a risk of decisions being prioritized for short-term investor returns, which can sometimes conflict with the long-term health of franchisees.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor to understand who makes strategic decisions.
• If a franchisor is PE-owned, it's wise to ask current franchisees about any changes in fees, support, or company culture since the acquisition.
• Your attorney should review any clauses in the Franchise Agreement that allow the franchisor to assign the agreement to a new owner.

Explanation

This specific risk was not identified in the FDD Package. FFL clearly discloses its parent company, Floyd's 99 Holdings, LLC, in Item 1. However, the parent company's financial statements are not provided, as FFL states the parent does not guarantee its obligations. It is important for a franchisor to disclose parent companies, and provide their financials if they guarantee performance, to ensure a complete picture of the system's financial backing.

Potential Mitigations

• Your accountant should always confirm if a parent company's financial statements are required for a full risk assessment, particularly if the franchisor is thinly capitalized.
• An attorney can help determine if a parent company guarantee exists and if it is sufficient to back the franchisor's obligations.
• In any franchise investment, it is critical to understand the complete corporate structure and the financial stability of all related entities.

Explanation

This specific risk was not identified in the FDD Package. FFL discloses its corporate history, noting its predecessor converted to an LLC and changed its name, but it is effectively the same continuing enterprise. Hidden or negative history from a predecessor entity, such as past litigation, bankruptcy, or high franchisee failure rates, can obscure the true historical challenges of a franchise system, preventing a fully informed investment decision.

Potential Mitigations

• An attorney should always carefully review Item 1 for any mention of predecessor companies and cross-reference with Items 3 and 4.
• If a system was acquired from a predecessor, a business advisor may be able to help you research the predecessor's public track record.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable historical context.