Explanation

This risk was not identified. The audited financial statements in Exhibit F show Equity One Franchisors, LLC (the Franchisor) is highly profitable, with substantial positive members' equity and strong operating cash flow. This financial strength suggests it has the resources to support its franchisees and grow the system. An accountant's review of these statements is always a prudent step for a prospective franchisee.

Potential Mitigations

• Engage an accountant to conduct an independent review of the franchisor's audited financial statements, including all footnotes.
• A discussion with your financial advisor about the franchisor's revenue sources and cash flow trends can provide valuable context.
• Your attorney should confirm that the financial statements provided meet all federal and state disclosure requirements.

Explanation

This risk was not identified in the FDD. The data in Item 20 does not show a rate of new franchise sales that would be considered unsustainably rapid. The system has experienced moderate growth offset by franchisee exits. This is relevant because unchecked, rapid expansion can strain a franchisor's ability to provide quality support to its franchisees.

Potential Mitigations

• Ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• A business advisor can help you analyze the relationship between system growth and the franchisor's support infrastructure.
• Your accountant can review the franchisor's financial statements to assess if they are investing sufficiently in support systems.

Explanation

This risk was not identified. Item 1 indicates the franchisor, Equity One Franchisors, LLC, began its franchise operations in 2007. With over 15 years of experience, it is an established system, not a new or unproven one. Investing in an established system typically carries less risk than investing in a startup franchise with no track record.

Potential Mitigations

• In discussions with current franchisees, ask about the evolution of the system and the franchisor's performance over time.
• Your business advisor can help you compare the franchisor's history and size with other systems in the insurance agency industry.
• Consult with your attorney to understand the benefits and drawbacks of joining a mature franchise system versus a new one.

Explanation

This risk was not identified. The franchise operates in the general insurance sales industry, which is a mature and established market. The business model is not based on a new or fleeting trend, which suggests a more stable, long-term demand for its services. This is important as a fad business can fail once consumer interest wanes, leaving you with ongoing contractual obligations.

Potential Mitigations

• Your business advisor can help you research the long-term outlook for the independent insurance agency sector.
• Discuss the stability of the insurance market and potential future disruptions with industry professionals.
• An accountant can help you model financial scenarios based on different economic conditions to assess business resilience.

Explanation

This risk was not identified. Item 2 shows that the key executives of the franchisor have been with the company since its inception in 2007 and have extensive prior experience in the insurance and financial services industries. Experienced leadership can be a significant advantage, as it often correlates with more effective support, training, and strategic direction for franchisees.

Potential Mitigations

• When speaking with franchisees, ask specifically about their interactions with and confidence in the senior management team.
• Engaging a business advisor to review the backgrounds of the management team can provide an objective assessment of their capabilities.
• Your attorney can help you frame questions for the franchisor regarding management's long-term vision for the system.

Explanation

This risk was not identified. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. This is a relevant factor, as private equity ownership can sometimes introduce a focus on short-term financial returns which may not always align with the long-term health of the franchisees and the brand.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor through public records.
• In discussions with the franchisor, you can inquire about their long-term ownership plans and strategic goals.
• A business advisor can provide insight into different franchise ownership structures and their potential implications for franchisees.

Explanation

This risk was not identified. The FDD clearly states in Item 1 that the franchisor does not have a parent company, though it does fully disclose its relationship with its affiliate, Equity One Insurance Agency, L.L.C. Proper disclosure of parent and affiliate companies is crucial for you to assess the complete financial and operational structure backing the franchise.

Potential Mitigations

• Have your attorney review the disclosures in Item 1 to ensure the relationship between the franchisor and its affiliates is clear.
• Your accountant should examine any disclosed financial dealings between the franchisor and its affiliates.
• Understanding the roles of all related entities is important; a business advisor can help clarify these operational connections.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. This means the system's operational and financial history is contained entirely within the current franchisor entity, simplifying your due diligence by eliminating the need to investigate a prior company's track record.

Potential Mitigations

• Your attorney can confirm the franchisor's corporate history through public record searches.
• When speaking with long-term franchisees, you can ask about the entire history of the brand to confirm there are no undisclosed predecessor entities.
• A business advisor can help you appreciate the reduced complexity that comes from a franchise system with no predecessor history.

Explanation

This risk was not identified. Item 3 discloses a single lawsuit from 2020 filed by a franchisee, which was settled and dismissed. This does not constitute a current or recurring pattern of litigation. A pattern of lawsuits, especially alleging fraud or breach of contract, can be a major red flag about a franchisor's practices and relationship with its franchisees.

Potential Mitigations

• Ask your attorney to review the details of the single disclosed lawsuit in Item 3 to understand its nature and resolution.
• It is good practice to have your attorney conduct an independent search for any other litigation involving the franchisor or its principals.
• You can ask current franchisees about the general nature of disputes within the system and how the franchisor typically handles them.