Explanation

This risk was not identified. The franchisor, Garage Living Franchise Systems USA, Inc. (GLF USA), began selling franchises in February 2015 and has an operating history of over a decade. An unproven system can present higher risks due to undeveloped support structures, lack of brand recognition, and a business model that has not been tested over time, but this franchisor has been operating for a significant period.

Potential Mitigations

• Even with an established system, it is prudent to have your business advisor help you conduct due diligence on the management team's long-term vision.
• Consulting with your attorney about the franchise's history of legal disputes can provide insight into its stability.
• An accountant should still review the financials to ensure the established system is on a sustainable path.

Explanation

This risk was not identified. The business, focused on residential garage renovation and organization, serves a durable market segment related to home improvement. While market demands can change, the core service does not appear to be based on a short-term trend or fad. A business based on a fad carries the risk of collapsing demand once public interest wanes, jeopardizing your long-term investment.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the home organization and improvement industry in your specific market.
• When speaking with the franchisor, you should inquire about their plans for product and service innovation to stay competitive.
• Your accountant can help you model different economic scenarios to assess the business's resilience to market downturns.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key management personnel have extensive experience with the Garage Living brand and in the industry, with many having been with the company or its affiliates for over a decade. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an unrefined business model, but that does not appear to be the case here.

Potential Mitigations

• When speaking with current franchisees, it's still a good practice to ask about their perception of the management team's competence and accessibility.
• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• Your attorney can help you understand the management structure and decision-making authority within the company.

Explanation

This risk was not identified. FDD Item 1 does not indicate that the franchisor is owned by a private equity firm. When a franchise is owned by a PE firm, there can be a risk that short-term financial goals are prioritized over the long-term health of the franchisees and the brand, potentially leading to increased fees, reduced support, or a quick resale of the system.

Potential Mitigations

• It is always a good practice to have your attorney help you understand the complete ownership structure of the franchisor as disclosed in Item 1.
• If ownership changes in the future, your business advisor can help you research the track record of the new owners.
• Your attorney should review any clauses in the Franchise Agreement that relate to the sale or transfer of the entire franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly describes the franchisor and its affiliates, and the financial statements in Item 21 are for the franchisor entity itself. Failing to disclose a parent company or provide its financials when required can obscure the true financial health and stability of the system, which is a risk for a prospective franchisee. However, that does not appear to be an issue here.

Potential Mitigations

• Your attorney should always confirm that the entity signing the Franchise Agreement is the same entity for which financial statements are provided.
• An accountant can help you understand the relationships between the franchisor and its affiliates as described in Item 1.
• If a parent company were to provide a guarantee, your attorney would need to ensure it is a legally binding document.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessor. Hidden or negative history from a predecessor company, such as high failure rates or litigation, can pose a risk because it may indicate underlying problems with the business model or brand that are not immediately apparent from the current franchisor's disclosures.

Potential Mitigations

• It is good practice to ask long-term franchisees about the history of the brand and any previous ownership structures.
• Your attorney can help you verify the corporate history disclosed in Item 1 through public records searches.
• A business advisor can assist in researching the brand's reputation and history online and within the industry.