Explanation

This risk was not identified, as GL 18 is a new franchisor with no operating franchised units, and therefore no franchisee turnover history is available in Item 20. The absence of this data is itself a risk, as it means there is no track record of franchisee success or failure within the system to evaluate. You will be among the first to test the franchise model's viability.

Potential Mitigations

• Engage a business advisor to assess the viability of the business model in the absence of historical franchisee performance data.
• A discussion with your attorney is important to understand the risks of joining a new, unproven franchise system.
• Since no former franchisees exist, speaking with managers of the affiliate-owned locations could provide some operational insight.

Explanation

This specific risk was not identified as GL 18 has not yet begun selling franchises and has no growth history. However, a new franchisor with limited financial resources, as indicated in Item 21, could be at risk of growing too quickly if initial sales are successful. This might strain its ability to provide the promised support, training, and quality control to all new franchisees.

Potential Mitigations

• In your discussions with the franchisor, ask about their specific plans for scaling their support staff and infrastructure as the system grows.
• Having a business advisor help you evaluate the franchisor's capacity to manage growth against their financial resources is a prudent step.
• Your attorney can review the franchisor's contractual support obligations to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchise is founder-owned and does not appear to be controlled by a private equity firm. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system and its franchisees. This does not appear to be a concern here.

Potential Mitigations

• Your attorney can help you confirm the ownership structure of the franchisor and its parent company through public records.
• It is good practice to ask about any potential plans for selling the franchise system in the future.
• A business advisor can help you understand the different risks associated with various franchisor ownership structures.

Explanation

This risk was not identified. The FDD's Item 1 properly discloses the existence of a parent company, GL 18 HoldCo, LLC. However, it is important to note that the parent company's financial statements are not provided, and there is no parent guarantee. Given the franchisor entity's very weak financial position, the lack of financial information or backing from the parent is a significant concern that relates to the franchisor's overall financial stability.

Potential Mitigations

• It is important to discuss with your accountant the implications of the franchisor's weak financials without a parent company guarantee.
• Your attorney can advise on whether state law might require the parent's financials to be disclosed under these circumstances.
• Ask the franchisor why the parent company is not providing a financial guarantee for the new, thinly capitalized franchise entity.

Explanation

This risk was not identified in the FDD. Item 1 states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets. A lack of predecessors means you are evaluating a company without a prior corporate history of acquisitions or restructuring, which simplifies due diligence in this area.

Potential Mitigations

• Your attorney can help verify the corporate history of the franchisor to confirm the absence of predecessors.
• A business advisor can help you focus due diligence on the franchisor's own limited history and that of its management team.
• Understanding the full history of a franchise system is always a key part of the review your professional advisors should conduct.

Explanation

This risk was not identified, as Item 3 reports no material litigation involving the franchisor. For a newly formed franchisor that has not yet sold any franchises, this is expected. A pattern of litigation, particularly claims of fraud or breach of contract brought by franchisees, is a major red flag that is not present here, but this area should be monitored as the system develops.

Potential Mitigations

• Your attorney can perform independent searches for litigation against the franchisor's affiliates and principals for a more complete picture.
• It's wise to establish a process for periodically checking for new litigation even after you become a franchisee.
• Discussing any past legal issues with managers of the affiliate-owned locations could provide additional context.