Explanation

The audited financial statements for Goldfish Swim School Franchising, LLC (Goldfish) for the fiscal years ending 2022, 2023, and 2024 show significant revenue, consistent net income, and positive members' equity. No indicators of financial instability, such as a going concern note, were identified. However, Note 10 discloses a significant financial guaranty for an affiliate's debt, a risk detailed under 'Guaranty of Affiliate Debt'.

Potential Mitigations

• Your accountant should review the audited financial statements, including all footnotes, to confirm the franchisor's financial health.
• Discuss the nature and potential impact of the affiliate debt guarantee with your franchise attorney and accountant.
• A business advisor can help you assess the franchisor's capacity to provide sustained support based on its financial position.

Explanation

Item 20 data for the past three years (2022-2024) indicates a consistently growing system with very low franchisee turnover. The tables show zero terminations and only one unit reacquired by the franchisor over the three-year period, against a backdrop of steady new openings. This suggests a high level of franchisee stability and satisfaction within the system.

Potential Mitigations

• It is still prudent to contact a diverse group of current and former franchisees listed in Item 20 to discuss their experiences.
• Your franchise attorney can help you formulate questions for franchisees regarding their satisfaction and profitability.
• Have your accountant review the Item 20 tables to confirm the low turnover rates.

Explanation

The outlet summary tables in Item 20 show steady and significant system growth, with a net increase of 18 franchised outlets in 2023 and 17 in 2024. While growth is positive, rapid expansion can sometimes strain a franchisor's ability to provide support. Goldfish has been franchising since 2008 and appears to be managing this growth, but it is a factor to monitor.

Potential Mitigations

• In your due diligence calls with current franchisees, it is important to ask about the quality and timeliness of franchisor support.
• A business advisor can help you assess whether the franchisor's support infrastructure seems adequate for its growth rate.
• Discuss the franchisor's plans for scaling its support systems with your attorney.

Explanation

Goldfish has been franchising since 2008 and has a substantial number of operating units, as shown in Items 1 and 20. The management team disclosed in Item 2 has significant longevity with the brand. Item 21 financials show a mature and profitable company. Therefore, this does not appear to be a new or unproven system.

Potential Mitigations

• It is still beneficial to review the long-term operating history and brand evolution with a business advisor.
• Asking long-tenured franchisees about the system's evolution and the franchisor's performance over time can provide valuable insight.
• Your accountant should review the multi-year financial statements to confirm the system's established financial track record.

Explanation

The business of operating a specialized swim school for children is a well-established industry. While market demands can change, this concept is not tied to a short-term trend or fad. Goldfish has been operating since 2006 and franchising since 2008, indicating a business model with sustained consumer demand.

Potential Mitigations

• A business advisor can help you conduct local market research to assess long-term demand for children's swim lessons in your area.
• It is still wise to discuss the business's long-term viability and competitive landscape with current franchisees.
• Your own market analysis should confirm the sustainability of this business model.

Explanation

Item 2 of the FDD details the business experience of the key management team. Many executives, including the CEO and President, have been with the company since its formation in 2008. The leadership team appears to have extensive experience both in the swim school industry and in managing the franchise system. This risk was not identified in the FDD.

Potential Mitigations

• It is still valuable to discuss the management team's accessibility and effectiveness with current franchisees.
• A review of the executives' backgrounds in Item 2 with a business advisor can provide additional context.
• During your own discussions with the franchisor, you can assess the management team's professionalism and vision.

Explanation

Item 1 of the FDD does not indicate that the franchisor is owned by a private equity firm. The founding members appear to remain in key leadership roles, suggesting continuity in management and strategy. Therefore, the specific risks associated with private equity ownership, such as a focus on short-term returns, were not identified.

Potential Mitigations

• Your franchise attorney can help you verify the ownership structure of the franchisor LLC.
• It is still a good practice to ask about any recent or anticipated changes in ownership.
• A business advisor can help you research the company's ownership history for a complete picture.

Explanation

The FDD discloses multiple affiliates in Item 1. However, the franchisor, Goldfish Swim School Franchising, LLC, is not a subsidiary of a parent company. Audited consolidated financial statements for the franchisor and its wholly-owned marketing subsidiary are provided in Item 21. No risk related to the non-disclosure of a parent company was identified.

Potential Mitigations

• Your accountant should review the provided financial statements to understand the relationship between the franchisor and its subsidiary.
• It is prudent to have your attorney confirm the corporate structure and the role of all affiliates mentioned in Item 1.
• Asking the franchisor to clarify the roles and financial interplay of each affiliate can provide additional clarity.

Explanation

Item 1 of the FDD states, "We do not have any parent companies or predecessors." This means the current franchisor did not acquire the system from a prior entity, and there is no predecessor history of litigation or bankruptcy to consider. This risk was not identified.

Potential Mitigations

• A review of the franchisor's formation documents and history with your attorney can confirm the absence of any predecessors.
• In conversations with long-tenured franchisees, you can inquire about the system's origins and history.
• Your business advisor can assist in researching the brand's history to ensure no unstated predecessor issues exist.

Explanation

Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates there is no current or recent history of material litigation involving the franchisor, its predecessors, or key personnel, which is a positive sign for a system of this size and maturity.

Potential Mitigations

• Even without disclosed litigation, it is wise to ask current and former franchisees about their experiences with disputes.
• Your attorney can conduct a public records search to independently verify the absence of significant litigation.
• Maintaining open and clear communication with the franchisor can help prevent future disputes.