Explanation

This risk was not identified in the FDD Package. The data in Item 20 indicates steady and moderate growth rather than explosive expansion that might strain support systems. However, franchisees should always be mindful that a sudden shift in sales strategy could lead to rapid growth, potentially impacting the quality and availability of franchisor support.

Potential Mitigations

• To understand the franchisor's capacity for growth, it's prudent to discuss their plans for scaling support infrastructure with a business advisor.
• Speaking with existing franchisees about the current quality and responsiveness of franchisor support can provide valuable insight.
• An accountant can review the franchisor's financial statements to assess if they appear to have the capital resources to support future growth.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that the franchise system began operating in 2000, giving it a long and established history. A new or unproven system carries higher risks related to the viability of its business model and the adequacy of its support structures, which does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, it is beneficial to have a business advisor help you assess the franchisor's history and track record in the industry.
• Even with established systems, consulting current franchisees about their experience with the brand's evolution provides important context.
• Your attorney should verify the franchisor's operational history as disclosed in Item 1.

Explanation

This risk was not identified in the FDD Package. The business model, focused on providing branded apparel and promotional products to other businesses, is a long-standing and established B2B service industry. It does not appear to be based on a short-term trend or fad, which would present a risk of declining consumer demand and long-term viability.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for the franchise's products and services.
• Reviewing the franchisor's plans for innovation and adaptation in Item 11 can offer insight into its long-term strategy.
• It is wise to consider any business model's resilience to economic shifts with your financial advisor.

Explanation

This risk was not identified in the FDD Package. Item 2 details a management team with extensive and long-term experience in the franchising industry, specifically within the United Franchise Group portfolio. Inexperienced leadership can pose a significant risk through unproven systems and inadequate support, but the executive team here appears to be well-seasoned in managing franchise systems.

Potential Mitigations

• It is always a good practice to have a business advisor help you vet the backgrounds of the key management personnel listed in Item 2.
• Discussing the quality of management and support with current franchisees can validate the experience presented in the FDD.
• Your attorney can help you understand the roles and responsibilities of the management team as they relate to the franchise relationship.

Explanation

This risk was not identified in the FDD Package. Item 1 describes the franchisor as part of an affiliated group of companies under the United Franchise Group name, which appears to be privately held. There is no indication of ownership by a private equity firm, which can sometimes introduce risks related to short-term profit motives over the long-term health of the brand.

Potential Mitigations

• Your attorney can help you research the franchisor's corporate structure to confirm its ownership and identify any potential influence from investment firms.
• A business advisor can help you understand the potential impacts of different ownership structures on a franchise system's strategy and culture.
• When PE ownership is a factor, speaking with franchisees about changes since the acquisition is a key due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 1 describes the franchisor's affiliation with other United Franchise Group brands but does not indicate it is a subsidiary of a parent company whose financials should have been disclosed. While the relationships are complex, the FDD does not appear to be concealing a required parent company disclosure.

Potential Mitigations

• An attorney can help you analyze the corporate structure outlined in Item 1 to identify any controlling entities.
• If a franchisor is a subsidiary, your accountant should determine if parent company financial statements are required and provided.
• Understanding any guarantees provided by affiliated companies is a crucial step for your attorney to review.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any predecessors, instead framing the change from 'EmbroidMe' as a rebranding of the same corporate entity. A predecessor's negative history can be a red flag, but no such predecessor is identified here.

Potential Mitigations

• Your attorney should carefully review Item 1 to identify any disclosed predecessors and their history.
• If a predecessor exists, researching their track record for litigation or bankruptcy is an important due diligence step for a business advisor to assist with.
• Speaking with long-term franchisees about their experiences under any previous ownership or brand name is always insightful.