Explanation

This risk was not identified. The audited financial statements in Exhibit E show consistent revenue growth and profitability over the last three years, with positive and growing stockholder equity. The franchisor appears to be in a stable financial position with sufficient resources to support the franchise system.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including all footnotes and the auditor's opinion, to provide an independent assessment of financial health.
• It is wise to discuss the franchisor's financial performance and future investment plans with your business advisor to gauge their long-term stability.
• Confirm with your attorney that the financial statements comply with all federal and state disclosure requirements.

Explanation

This risk was not identified. The data in Item 20 shows a very low rate of terminations, non-renewals, and cessations of operation over the past three years, well within a healthy range for a system of this size. This indicates a stable franchise system with low franchisee distress.

Potential Mitigations

• To gain qualitative insight, consider contacting a sample of current and former franchisees from the lists provided in the FDD to discuss their experiences.
• Your accountant can help you calculate the precise turnover rates from Item 20 data for your own analysis.
• Discussing the reasons for any listed transfers with the franchisor can provide additional context, which your business advisor can help facilitate.

Explanation

This risk was not identified. While the system has grown, the data in Item 20 shows a moderate and controlled pace of expansion over the last few years. This rate of growth does not appear to be outpacing the franchisor's ability to provide support, especially given their long history and stable financials.

Potential Mitigations

• It is beneficial to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• Your business advisor can help you assess whether the franchisor's infrastructure, as described in Item 11, seems adequate for the current system size.
• In discussions with the franchisor, you could inquire about their future growth plans and how they intend to scale support services.

Explanation

This risk was not identified. The disclosures in Items 1, 2, and 20 show that Fred Astaire Dance Studios is a large, mature franchise system with a history dating back decades and a management team with extensive experience in the industry and within the company itself. The business model is well-established.

Potential Mitigations

• A business advisor can help you evaluate the benefits and potential drawbacks of joining a very mature system versus a newer one.
• Even in established systems, speaking with franchisees who have joined at different times can provide a balanced perspective on the brand's evolution.
• Your attorney can confirm that all historical and predecessor information required by law has been properly disclosed.

Explanation

This risk was not identified. The franchisor operates in the ballroom dance instruction industry, a market segment with a long history of sustained consumer interest. The business model is not based on a new or fleeting trend, suggesting a lower risk of being a fad.

Potential Mitigations

• Your own market research, assisted by a business advisor, should be conducted to assess local demand for dance instruction.
• Consider discussing the industry's long-term outlook and competitive landscape with your financial advisor.
• Reviewing the franchisor's marketing materials and plans in Item 11 can offer insight into how they adapt to changing consumer tastes.

Explanation

This risk was not identified. Item 2 details a management team with extensive, long-term experience within the Fred Astaire system and the dance industry. Several key executives have been with the company for decades, indicating a deep understanding of the business and franchise operations.

Potential Mitigations

• It is still valuable to interview current franchisees to get their direct feedback on the management team's effectiveness and accessibility.
• A business advisor can help you assess how the management team's deep experience might translate into effective support and strategic direction.
• When meeting the franchisor, take the opportunity to ask key executives about their vision for the brand's future.

Explanation

This risk was not identified. While a leveraged buyout occurred in 2017, Item 1 indicates the ownership structure involves long-term holding companies and insiders, not a typical external private equity firm. The management team consists of long-time system veterans, suggesting that decisions are not primarily driven by short-term exit strategies common to PE ownership.

Potential Mitigations

• It is prudent to have your attorney review the ownership structure in Item 1 to fully understand who controls the company.
• Engaging a business advisor can help you research the history of the holding companies involved for additional context.
• You should still ask current franchisees if they have noticed any changes in company philosophy or support levels since the 2017 buyout transaction.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies and the overall corporate structure. Furthermore, the financial statements provided in Item 21 are consolidated, meaning they reflect the financial position of the franchisor along with its parent and affiliated entities, providing a comprehensive financial picture.

Potential Mitigations

• Your accountant should confirm that the consolidated financial statements provide a complete picture of the entire franchise system's financial health.
• It is wise for your attorney to review the relationships between the various affiliated entities described in Item 1.
• Asking the franchisor to explain the role of each parent and affiliate company can provide additional clarity.

Explanation

This risk was not identified. Item 1 discloses the franchisor's predecessors, and Item 3 discloses a governmental action from 1964 involving a predecessor. The franchisor appears to be transparent about its lineage and the historical legal issue, which is very old. There is no indication of hidden or problematic predecessor history.

Potential Mitigations

• Your attorney should review the disclosures related to predecessors to ensure they are complete and to explain the relevance of any historical events.
• It can be useful to ask long-tenured franchisees about their experiences under any previous ownership or corporate structure.
• A business advisor can help you research public records for additional information on the predecessor companies if you have concerns.

Explanation

This risk was not identified. Item 3 does not disclose any franchisee-initiated litigation against the franchisor alleging fraud or misrepresentation. The governmental actions disclosed are either a single, settled registration issue from 2016 or a very old consent order from 1964. There is no pattern of litigation to suggest systemic problems with the franchisor.

Potential Mitigations

• Your attorney should still review the details of the disclosed governmental actions to ensure you understand any ongoing compliance obligations.
• Conducting due diligence calls with current and former franchisees is a good way to ask about any disputes they may have had, even if not disclosed litigation.
• A business advisor can help you search public court records for any litigation not required to be disclosed in the FDD.