Explanation

This risk was not identified in the FDD Package. As a new franchisor, Fuelify has no history of franchisee turnover. In established systems, high rates of terminations, non-renewals, or stores ceasing operations, as shown in Item 20, can be a critical red flag. It may suggest systemic problems, such as a lack of profitability or franchisee dissatisfaction, which warrants significant investigation before investing.

Potential Mitigations

• For any franchise, it is crucial to have your accountant analyze the turnover tables in Item 20 for the last three years.
• Speaking with a significant number of former franchisees from the provided lists is a key due diligence step a business advisor can help you with.
• Your attorney can help you formulate questions for the franchisor to understand the reasons behind any high turnover numbers.

Explanation

This risk was not identified in the FDD Package. Since Fuelify is a new franchisor with no existing franchisees, there is no history of rapid system growth. For other franchise systems, a sudden explosion in the number of units can strain the franchisor's ability to provide adequate support, training, and quality control to all its franchisees, potentially harming the brand and individual unit success.

Potential Mitigations

• Engaging a business advisor to assess whether a franchisor's support infrastructure is scaling with its growth is a wise step.
• In any system you consider, consulting with your accountant to review the franchisor's financial capacity to support its expansion is essential.
• Your attorney should help you question a franchisor about its specific plans for managing and supporting rapid growth.

Explanation

This risk was not identified in the FDD Package. The documents do not indicate that Fuelify is owned or controlled by a private equity firm. When this ownership structure exists, there can be a risk that the firm may prioritize short-term returns for its investors over the long-term health of franchisees, potentially leading to increased fees or reduced support.

Potential Mitigations

• Should you consider a franchise owned by a private equity firm, a business advisor can help you research the firm's reputation and track record.
• It's wise to ask your attorney to review how a potential sale of the franchise system by a private equity owner could affect your agreement.
• Speaking with franchisees in other systems owned by the same firm can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. Item 1 appears to properly disclose the affiliate, Fuelify LLC, and does not suggest a parent company structure is being withheld. In some cases, a franchisor might be a small subsidiary of a larger, undisclosed parent. Failure to disclose a parent company and its financials, when required, can hide important information about the true financial backing and stability of the franchise system.

Potential Mitigations

• Your attorney can help you verify the corporate structure if you suspect an undisclosed parent company might exist.
• An accountant should review the financials of any disclosed parent company, especially if it guarantees the franchisor's obligations.
• Understanding the relationships between all affiliated entities is an important discussion to have with a business advisor.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any predecessors for Fuelify. When a franchisor has acquired the system from a predecessor, it is important to understand the predecessor's history. This includes any past litigation, bankruptcy, or high franchisee turnover, as these can reveal inherited problems or historical challenges for the brand that might not be immediately apparent.

Potential Mitigations

• It is important for your attorney to carefully review any predecessor information disclosed in Items 1, 3, and 4 of an FDD.
• A business advisor can help you research the reputation and track record of any predecessor entity.
• Asking long-term franchisees about their experiences under previous ownership can provide valuable historical context.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses no litigation history for the franchisor, its predecessors, or its management. In other FDDs, a pattern of lawsuits filed by franchisees alleging fraud or misrepresentation can be a significant red flag. Likewise, an excessive number of lawsuits filed by the franchisor against its franchisees might indicate an overly aggressive or litigious operational culture.

Potential Mitigations

• In any franchise review, your attorney should carefully analyze the nature, status, and outcome of all lawsuits disclosed in Item 3.
• A business advisor can help you understand whether the amount and type of litigation is normal for a system of that size and age.
• Speaking with franchisees involved in past or pending litigation can provide critical, first-hand information.