Explanation

This risk was not identified. The FDD's Item 20 data shows a net decrease in the number of franchised units over the past two years, indicating system shrinkage rather than rapid growth. However, managing growth is a key franchisor challenge. If a system expands too quickly, its ability to provide training, site selection, and operational support can be strained, potentially diminishing the value you receive for your royalty payments.

Potential Mitigations

• A business advisor can help you analyze the three-year trend in unit growth versus shrinkage presented in Item 20.
• Posing questions to current franchisees about the quality and timeliness of franchisor support during periods of growth is a valuable exercise.
• Your accountant should assess if the franchisor's financials reflect sufficient investment in support infrastructure to handle any future growth spurts.

Explanation

This risk was not identified. Goosehead began franchising in 2011 and has a significant number of operating units, indicating it is an established system rather than a new or unproven one. For any franchise, especially newer ones, it is important to assess the franchisor's track record, the maturity of its systems, and its brand recognition. Investing in an unproven system carries higher risks related to support, operational efficiency, and overall business viability.

Potential Mitigations

• With any franchise, it is prudent to have your business advisor help you research the franchisor's history and the experience of its management team.
• Your attorney should verify that the franchisor has met all legal requirements for selling franchises in your state.
• An accountant's review of the franchisor's financial statements can provide insight into the stability and maturity of the business.

Explanation

The franchised business is an independent insurance agency. This is a well-established industry with consistent demand, not typically considered a fad. The business model relies on selling property, casualty, and other insurance products. However, any business model's long-term success depends on its ability to adapt to market changes, such as the rise of online insurance aggregators and shifting consumer buying habits. Your success will depend on the brand's continued relevance and value proposition.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape in the independent insurance agency industry.
• Inquiring with the franchisor about their strategies for technological innovation and adapting to market changes is an important step.
• Speaking with long-tenured franchisees about the evolution of the business model can provide valuable historical context.

Explanation

This risk was not identified. The executive team described in Item 2 includes co-founders with experience in the insurance and franchising business since 2003 and 2011, respectively. Other executives have been brought in from various external companies. Assessing management's direct experience in both the specific industry and in supporting a franchise network is crucial, as inexperience can lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• A thorough review of the management team's biographies in Item 2 with your business advisor is a recommended step.
• Asking current franchisees about their direct experiences with the management team's competence and support is crucial for due diligence.
• Your attorney can help you investigate the public track record of key executives if there are any concerns.

Explanation

This risk was not identified. While Goosehead is a subsidiary of a publicly traded company, Goosehead Insurance, Inc. (GSHD), it is not owned by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns, which may not always align with the long-term health of franchisees. This can manifest as increased fees, reduced support, or a quick resale of the franchise system, creating uncertainty for your investment.

Potential Mitigations

• Your attorney can help you understand the implications of the franchisor's corporate structure, as detailed in Item 1.
• It is wise to ask your business advisor to research the ownership history of any franchise you are considering.
• Discussing any ownership changes with existing franchisees can reveal potential impacts on the system's culture and support.

Explanation

This risk was not identified. Item 1 clearly discloses a multi-layered parent company structure, culminating in the publicly traded parent, Goosehead Insurance, Inc. (GSHD). The FDD includes the parent company's audited financial statements in Item 21 and a formal Guarantee of Performance from the parent in Exhibit F-2. This level of disclosure provides significant transparency into the financial backing and ultimate responsibility for the franchisor's obligations.

Potential Mitigations

• Your attorney should review the parent company guarantee to confirm its strength and enforceability.
• It is important for your accountant to analyze the parent company's financial statements, as they reflect the ultimate financial health backing the system.
• A business advisor can help you understand the operational relationship between the franchisor entity and its parent.

Explanation

This risk was not identified. Goosehead discloses in Item 1 that it does not have any predecessors. When a franchisor acquires a business and converts it into a franchise system, it's important that the history of that predecessor business is fully disclosed. This includes any past litigation, bankruptcy, or franchisee performance issues, which could indicate underlying problems that might persist under the new franchisor's ownership. A clean slate with no predecessors simplifies this aspect of due diligence.

Potential Mitigations

• Your attorney can verify the franchisor's corporate history and confirm the absence of any undisclosed predecessors.
• When evaluating any franchise, asking long-tenured employees or franchisees about the system's history is a good due diligence practice.
• A business advisor can help you research the origins of the brand and its business model.