Explanation

This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and resources to all franchisees. It is important to assess whether a franchisor's infrastructure for support is keeping pace with its unit growth to ensure new and existing franchisees receive the assistance they need to succeed.

Potential Mitigations

• It is prudent to have your accountant review the franchisor's financial statements to assess if they have the capital to support their growth plans.
• Engaging a business advisor to discuss the franchisor's plans for scaling its support systems can provide valuable insight.
• Speaking with franchisees who have recently joined the system can help you understand the current quality of onboarding and support.

Explanation

This risk was not identified in the FDD Package, as the franchisor, Gotcha Covered Franchising, LLC (GCF), has been in business since 2009. An unproven system can present risks because its business model, brand recognition, and support structures are not yet well-established. Prospective franchisees should carefully evaluate the experience of the management team and the system's financial stability when considering an investment in a newer franchise concept.

Potential Mitigations

• A business advisor can help you conduct thorough due diligence on the industry and the long-term viability of the business model.
• An accountant's review of the franchisor’s capitalization and financial projections is crucial for assessing the stability of a new system.
• Consulting with an attorney is advisable to potentially negotiate more favorable terms to offset the higher risk of an unproven concept.

Explanation

This risk was not identified in the FDD Package. The window treatment industry is well-established. However, a business concept tied to a short-lived trend can be risky, as consumer demand may disappear, leaving you with a long-term contract for an obsolete business. Evaluating a concept's long-term market relevance and its ability to adapt is a key part of due diligence.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand for the products or services offered.
• It is wise to assess the franchisor's commitment to research and development to ensure the business model can evolve with market trends.
• Your financial advisor can help you model the financial risks associated with a business concept that might be a fad.

Explanation

This risk was not identified in the FDD Package. The franchisor discloses its parent company, FS PEP Holdco, LLC (FS PEP), and provides its audited consolidated financial statements. Failing to disclose a parent company or its financials when required can obscure the true financial backing and stability of the franchise system, hiding significant risks from prospective franchisees. Proper disclosure is crucial for a complete risk assessment.

Potential Mitigations

• Your attorney should always verify the corporate structure to confirm that all relevant parent and affiliate companies are properly disclosed.
• If a parent company guarantees the franchisor's obligations, it is important for your accountant to review their financial statements.
• Consulting a business advisor can help you understand the operational implications of a complex parent-subsidiary structure.

Explanation

This risk was not identified as significant in the FDD Package. The franchisor discloses a predecessor, V2K Window Fashions, Inc., but notes it was dissolved in 2021 and there are no remaining franchises under that name. A history involving predecessors can sometimes introduce risks if the predecessor had financial or legal troubles, as these issues could potentially carry over or indicate systemic problems. A clean and fully disclosed predecessor history is generally a positive sign.

Potential Mitigations

• It is good practice to have your attorney carefully review any predecessor history disclosed in Item 1, 3, and 4.
• Inquiring with long-term franchisees about their experience under any predecessor can offer valuable historical context.
• A business advisor can help you research a predecessor's public track record if any concerns arise.

Explanation

This risk was not identified in the FDD Package, as the franchisor reports no material litigation required to be disclosed. A pattern of litigation, particularly lawsuits initiated by franchisees alleging fraud or misrepresentation, can be a major red flag. It may signal systemic problems in franchisee relations, support, or the sales process. Conversely, an absence of such litigation is a positive indicator of a potentially healthy franchise system.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the threshold for disclosure in Item 3.
• It is always a crucial step to ask current and former franchisees about their experiences and any disputes they may have had with the franchisor.
• A business advisor can help you interpret the significance of any litigation found, whether disclosed or not.