Explanation

The franchisor's audited financial statements show significant profitability and positive member's equity. However, the balance sheet also indicates substantial inter-company loans with its parent, Brunswick Corporation, with a large 'Due from related parties' asset. While FFS appears financially sound on its own, its operational cash flow may be closely tied to its parent company's financial management. This financial entanglement could create dependencies that are not immediately apparent from the standalone statements.

Potential Mitigations

• Your accountant should analyze the financial statements, including the notes on related party transactions, to assess the franchisor's reliance on its parent company.
• Discuss the nature and terms of the inter-company loans with a financial advisor to understand potential impacts on the franchisor's operational independence.
• It is wise to ask the franchisor about the health of its parent company, Brunswick Corporation, and how that relationship supports the franchise system.

Explanation

This specific risk was not identified in the FDD Package. Freedom Boat Club began franchising in 2011 and was acquired by Brunswick Corporation in 2019, indicating a relatively established system with experienced corporate backing. An unproven system is a risk because it may lack refined operational procedures, brand recognition, and a history of franchisee success, which can make it a speculative investment. Always verify the franchisor's history and experience.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor help you research the franchisor’s history and the track record of its management team.
• Consulting with the earliest franchisees in a system can provide valuable insight into its evolution and the stability of its business model.
• An attorney can help you assess the risks associated with a newer or less experienced franchisor and negotiate for more protective terms.

Explanation

This specific risk was not identified in the FDD Package. The business model, a membership-based boat club, has been in operation since 1989 and represents a niche in the recreational marine industry. However, any business tied to discretionary consumer spending can be vulnerable to economic shifts. A 'fad' business carries the risk that its popularity may be short-lived, potentially leaving you with a worthless business and long-term contractual obligations after consumer interest fades.

Potential Mitigations

• Engage a business advisor to research the long-term market trends for shared-access recreational assets to gauge the sustainability of the business model.
• It is wise to assess the company's plans for innovation and adaptation to shifting consumer preferences or economic conditions.
• An accountant can help you model the financial impact of potential downturns in discretionary spending on your business's viability.

Explanation

This specific risk was not identified in the FDD Package. The key personnel listed in Item 2 appear to have significant experience within the marine industry and with the parent company, Brunswick Corporation. Inexperienced management can be a risk because it may lead to poor strategic decisions, inadequate franchisee support, and an inability to navigate industry challenges, which could jeopardize your investment. Always scrutinize the background of the executive team.

Potential Mitigations

• A business advisor can assist in researching the professional backgrounds of the franchisor's key management personnel.
• When conducting due diligence, it is important to ask current franchisees about the competence and responsiveness of the leadership team.
• An attorney should be consulted if management lacks significant experience in either the specific industry or in franchising.

Explanation

This specific risk was not identified in the FDD Package. The franchisor discloses its parent, Brunswick Corporation, and provides its own audited financial statements. Failure to disclose a parent company or its financials when the parent guarantees performance or is the primary source of the franchisor's financial stability can hide significant risks. It may obscure the true financial health and resources backing the franchise system, preventing a fully informed investment decision.

Potential Mitigations

• An attorney can help verify the franchisor's corporate structure and determine if parent company financial disclosures are required but missing.
• When a parent company's financials are provided, your accountant should review them as carefully as the franchisor's own statements.
• A business advisor can help investigate the parent company's reputation and financial stability through public records.

Explanation

This specific risk was not identified in the FDD Package. The franchisor discloses one predecessor, Freedom Franchise Sales LLC, and provides context on the transition. Inadequate disclosure of a predecessor's history can obscure past issues like high failure rates or litigation. This prevents you from seeing a complete picture of the system's historical challenges, which could be inherited by the current franchisor and ultimately affect your business.

Potential Mitigations

• Your attorney should carefully analyze all information related to predecessors in Items 1, 3, and 4.
• It is wise to ask long-tenured franchisees about their experience under any prior ownership or management structure.
• A business advisor can help you conduct independent research on a predecessor's business reputation and history.