Explanation

The FDD does not indicate excessively rapid growth; in fact, Item 20 data shows the system has been shrinking over the past three years. While this avoids risks associated with a franchisor overextending its support capabilities, the declining number of units presents its own set of significant challenges regarding system health and brand momentum.

Potential Mitigations

• Discuss the system's lack of growth and plans for future development with the franchisor and your business advisor.
• Investigate with your accountant whether the lack of growth is impacting the franchisor's financial ability to support existing franchisees.
• Your attorney can help you understand any contractual obligations the franchisor has regarding brand development and support.

Explanation

This risk was not identified in the FDD. Item 2 indicates the founder and CEO, Esther Gokhale, has extensive experience teaching the method since the 1990s. Generally, inexperienced management can be a risk if they lack knowledge in franchising or the specific industry, potentially leading to poor support and strategic errors. In this case, the founder appears to have deep industry experience, although the franchising system itself remains small.

Potential Mitigations

• When speaking with current franchisees, ask about the quality of franchise-specific support, not just the technical coaching.
• A business advisor can help you assess if the management team's skills extend to effectively running a franchise network.
• It's wise to have your attorney confirm if there are other key executives and review their franchising experience.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that the franchisor is owned by a private equity firm. This type of ownership can be a concern as PE firms may prioritize short-term returns over the long-term health of the franchise system, potentially leading to increased fees, reduced support, or a quick sale of the brand.

Potential Mitigations

• Your attorney can help verify the ownership structure of the franchisor if there are any ambiguities in Item 1.
• Discussing the franchisor's long-term vision with management can provide insight into their commitment to the brand.
• A business advisor can help research the background of the ownership team to understand their history with other companies.

Explanation

The franchisor, GMI, is a wholly owned subsidiary of Gokhale Method Enterprise, Inc. (“GME”). The FDD discloses this parent company and includes its financials, which are relevant as GME provides administrative services and is the source for proprietary products. While disclosure is made, your success is tied to the health and operations of both entities, adding a layer of complexity to your risk assessment.

Potential Mitigations

• Your accountant should review the financial statements of both the franchisor and its parent company.
• It is important to have your attorney review any agreements or obligations between the parent and the franchisor that could impact your franchise.
• Inquire about the specific roles and responsibilities of the parent company versus the franchisor.

Explanation

This risk was not identified in the FDD. Item 1 describes a predecessor relationship with the founder, Esther Gokhale, and her prior 'Affiliate Program Agreements,' which were converted to franchises. The disclosure appears to be straightforward. Generally, this risk occurs if a franchisor fails to disclose or obscures negative history from a predecessor, such as litigation or high failure rates, which could hide systemic problems.

Potential Mitigations

• It's a good practice to ask your attorney to review any predecessor information in Items 1, 3, and 4.
• If a predecessor exists, asking long-term franchisees about their experience under the previous structure is a valuable due diligence step.
• A business advisor can help you research the history of the brand and its prior owners if any are disclosed.

Explanation

This risk was not identified in the FDD. Item 3 states, 'No disclosures are required to be made in this item,' indicating no recent, material litigation involving the franchisor, its predecessors, or key personnel that would require disclosure. A pattern of litigation, especially claims of fraud or breach of contract from other franchisees, is a significant red flag in a franchise system.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the technical requirements for disclosure in Item 3.
• Always ask current and former franchisees about any disputes they have had with the franchisor, whether they resulted in litigation or not.
• Understanding the dispute resolution clauses in the Franchise Agreement with your attorney is important, even without a history of litigation.