Explanation

This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support to all franchisees. If a franchisor expands too quickly, resources for training, site selection, and operational guidance may be spread too thin, potentially compromising the quality of support for new and existing locations. This system does not appear to be undergoing dangerously rapid net growth, though its high churn is a related concern.

Potential Mitigations

• Your business advisor can help you evaluate a franchisor's growth rate in the context of its support infrastructure and financial resources.
• In discussions with existing franchisees, it is useful to ask about the consistency and quality of support as the system has grown.
• An accountant's review of the franchisor's financials can help determine if they have the capital to sustain growth without sacrificing support.

Explanation

This risk was not identified in the FDD Package. An unproven franchise system presents higher risks because its business model, brand recognition, and support structures are not yet well-established. Prospective franchisees have less historical data to evaluate, and the franchisor may have limited experience in managing a franchise network. FocalPoint Coaching, Inc. (FocalPoint) began franchising in 2011 and is not considered a new or unproven system.

Potential Mitigations

• When evaluating a new system, it's crucial for your business advisor to help you scrutinize the industry experience of the management team.
• An attorney should be asked to review the franchise agreement for additional protections, given the higher inherent risk of a new system.
• Speaking with the very first franchisees of a young system can provide invaluable insight into the franchisor's learning curve and support quality.

Explanation

This risk was not identified in the FDD Package. A business concept tied to a temporary trend or fad can be a risky long-term investment. While popular initially, demand may decline quickly, leaving you with a long-term franchise agreement for an obsolete business. Evaluating whether a concept has enduring customer appeal versus being a short-lived novelty is a key piece of due diligence. The business coaching industry is established and not considered a fad.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term sustainability of the industry and business model.
• Reviewing a franchisor's plans for innovation and adaptation can provide insight into their strategy for remaining relevant.
• Your accountant can help model the financial impact if initial high demand were to decrease significantly over time.

Explanation

This risk was not identified in the FDD Package. Inexperienced management can pose a risk to a franchise system's stability and success. If key executives lack specific experience in the industry or, more importantly, in franchising, they may struggle to provide effective support, training, and strategic direction. The management team at FocalPoint appears to have significant tenure with the company and within the industry.

Potential Mitigations

• Your business advisor should assist you in thoroughly researching the professional backgrounds of the key management personnel listed in Item 2.
• It is beneficial to ask current franchisees about their direct experiences with the management team's competence and accessibility.
• An attorney can help you understand what contractual commitments for support exist if management changes in the future.

Explanation

This risk was not identified in the FDD Package. When a franchisor is owned by a private equity firm, there may be a focus on short-term financial returns that might not align with the long-term health of franchisees. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system. FocalPoint does not appear to be owned by a private equity firm.

Potential Mitigations

• If evaluating a PE-owned franchise, your business advisor can help research the firm's history with other franchise brands.
• It is wise to ask current franchisees about any changes in operations or support since a private equity acquisition.
• Your attorney should review the assignment clause in the franchise agreement to understand what happens if the system is sold.

Explanation

This risk was not identified in the FDD Package. A parent company's financial health and operational strategy can significantly impact a subsidiary franchisor. If a franchisor is reliant on a parent for financial support or key services, failure to disclose the parent's identity and provide their financial statements can hide critical risks. FocalPoint discloses its affiliate, FocalPoint International, Inc., and its financial relationship, so this specific risk is not present.

Potential Mitigations

• An attorney can help you verify the corporate structure to identify any undisclosed parent or controlling entities.
• If a parent company guarantee is provided, your accountant should carefully review the parent's financial statements for stability.
• Understanding the legal and financial relationship between a subsidiary franchisor and its parent is a key task for your attorney.

Explanation

This risk was not identified in the FDD Package. A franchisor's predecessor is a former entity from which it acquired the business. Failing to disclose or providing incomplete information about a predecessor's history, including past litigation, bankruptcy, or franchisee failures, can conceal systemic issues that may still affect the franchise system. FocalPoint discloses its predecessor and related litigation, so this risk is not present.

Potential Mitigations

• Your attorney should carefully review Item 1 of the FDD for any mention of predecessors.
• A business advisor can help you conduct independent research on any disclosed predecessor's reputation and history.
• It can be insightful to ask long-tenured franchisees about their experiences under any previous ownership.