Explanation

This risk was not identified in the FDD Package. The system has seen slow and steady growth, not the kind of explosive expansion that often strains a franchisor's support systems. Uncontrolled, rapid growth can be a significant risk because it may outpace the franchisor's ability to provide adequate training, site selection assistance, and ongoing operational support to all of its new franchisees, potentially diminishing the value of the system for everyone.

Potential Mitigations

• A business advisor can help you assess whether the franchisor’s support infrastructure is scalable for future growth.
• When speaking with current franchisees, it is useful to ask about the quality and timeliness of the support they currently receive.
• An accountant can review the franchisor's financial statements to determine if they are reinvesting sufficiently in support systems.

Explanation

The franchisor, TFL, began franchising in 2015 and has an established system with over 90 units. Its affiliate has been in the locksmith business since 1946, and its management team has significant industry experience. Therefore, the risks associated with a new or unproven system are not present here. For truly new systems, risks include an unproven business model, lack of brand recognition, and inexperienced management, which can increase the chance of failure.

Potential Mitigations

• Even with an established system, it is wise to have a business advisor help you assess the company's track record and franchisee satisfaction.
• Consulting with an accountant to review the financials of any franchise is a crucial step in understanding its stability.
• An attorney can help you understand all the terms of the agreement, regardless of the franchisor's age.

Explanation

This risk was not identified in the FDD Package. The locksmith and security services industry is a long-established trade with consistent demand, not a business based on a short-term trend. A fad business carries the risk that consumer interest could decline rapidly, potentially leaving you with a worthless business while still being bound by a long-term franchise agreement and lease. This franchise appears to be in a stable, necessary service industry.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term demand for the services in your specific area.
• When creating financial projections, your accountant should help you model different scenarios, including potential shifts in market demand.
• It is always prudent to ask your attorney to review the franchise agreement for any clauses that might be problematic if the business model needs to evolve.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the key executives have extensive experience in both the locksmith industry and in franchising. For example, the CEO has been with the affiliate company since 1994. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate support for franchisees, which can jeopardize the entire franchise system's viability and your investment.

Potential Mitigations

• It is still advisable to conduct your own due diligence by speaking with current franchisees about their direct experiences with the management team.
• A business advisor can help you research the background and reputation of the key executives in the franchise industry.
• Your attorney can help you understand the contractual obligations the franchisor has, regardless of their experience level.

Explanation

This risk was not identified in the FDD Package. The FDD does not indicate that the franchisor is owned by a private equity firm. This is an important consideration because private equity ownership can sometimes lead to a focus on short-term profitability and a quick exit strategy, which may not always align with the long-term health of the franchise system or the interests of individual franchisees. Changes in ownership can also lead to shifts in company culture and support.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor you are considering.
• It's wise to ask your attorney to review the assignment clause in the franchise agreement to understand what happens if the franchisor is sold.
• Speaking with current franchisees can provide insight into the franchisor's long-term vision and commitment to the brand.

Explanation

This risk was not identified in the FDD Package. The franchisor discloses its affiliate, The Flying Locksmiths, Inc., and provides its own audited financial statements. There is no indication of a parent company whose financials would be material to your decision and are not being disclosed. Full disclosure of parent or affiliate financials is important when the franchisor itself is newly formed, thinly capitalized, or reliant on the parent for support, guarantees, or essential services.

Potential Mitigations

• Your attorney should always confirm that the disclosures regarding parents and affiliates in Item 1 appear complete.
• An accountant should review the provided financials to assess whether the franchisor appears financially independent or reliant on an affiliate.
• A business advisor can help you research the corporate structure to identify any other related entities that may influence the franchise.

Explanation

This risk was not identified in the FDD Package. The franchisor, TFL, states in Item 1 that it has no predecessors. This means the entity offering the franchise is the same one that has been operating the franchise system since its inception. When predecessors exist, it's crucial to examine their history for issues like litigation, bankruptcy, or high franchisee turnover, as these problems could be inherited by the current franchisor and affect the system's health.

Potential Mitigations

• Your attorney should always verify the statements made in Item 1 regarding predecessors and corporate history.
• A business advisor can assist in researching the company's history to ensure no prior entities or systems were involved.
• Speaking with long-term franchisees can help confirm the operational history of the brand and its management.