Explanation

This risk was not identified in the FDD package. A high rate of franchisee terminations, non-renewals, and closures can be a major red flag, potentially indicating systemic issues such as lack of profitability or poor franchisor support. The data in Item 20 for this franchise does not suggest an unusually high turnover rate in the most recent year.

Potential Mitigations

• Your accountant can help you calculate and analyze the turnover rates from Item 20 for the past three years.
• Speaking with former franchisees listed in the FDD is a critical step your business advisor might recommend to understand why they left the system.
• It is wise to ask your attorney to help you formulate questions for former franchisees about their departure.

Explanation

This risk was not identified in the FDD package. While growth can be positive, extremely rapid expansion can sometimes strain a franchisor's resources, potentially leading to a decline in the quality of support, training, and site selection assistance provided to new franchisees. The growth rate indicated in Item 20 for this system appears to be moderate and not indicative of this specific risk.

Potential Mitigations

• A business advisor can help you analyze the system's growth in Item 20 relative to the franchisor's size and resources.
• It is prudent to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• Your accountant should review the franchisor's financial statements to assess if they have the capital to support their growth.

Explanation

This risk was not identified in the FDD package. This franchise system has a long operating history, with its predecessor starting in 1978. Investing in a new or unproven franchise system carries higher risks, as the business model may not be validated, brand recognition may be low, and the franchisor may lack experience in providing franchisee support.

Potential Mitigations

• For any franchise, it's wise to have your attorney review the business experience of the management team in Item 2.
• A business advisor can help assess the long-term viability and track record of the franchise system.
• You should still verify the system's health by speaking with a range of current franchisees listed in Item 20.

Explanation

This risk was not identified in the FDD package. The business provides automotive oil changes and preventive maintenance services, which is a mature industry with established, long-term consumer demand. Fad businesses, which are tied to fleeting trends, pose a risk because demand can disappear, potentially leaving you with a worthless business and ongoing contractual obligations.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for any industry you consider entering.
• It is wise to evaluate a business concept's resilience to economic shifts and changing consumer tastes.
• Consider asking your financial advisor about the sustainability of the business model over the full term of the franchise agreement.

Explanation

This risk was not identified in the FDD package. The management team detailed in Item 2 appears to have considerable experience in both the automotive service industry and in franchising. Inexperienced leadership can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support, even with good intentions.

Potential Mitigations

• A thorough review of the executive biographies in Item 2 with your business advisor is a crucial due diligence step.
• It is always recommended to ask current franchisees about their perception of the management team's competence and support.
• Your attorney can help you investigate the track record of the key personnel at their prior companies.

Explanation

This risk was not identified in the FDD package. The franchisor provides a clear corporate structure in Item 1 and includes audited financial statements and a performance guarantee for its parent company in Item 21 and its exhibits. In some cases, franchisors may not disclose parent companies or their financials, which can hide financial weaknesses or obscure who truly controls the franchise system.

Potential Mitigations

• Always have your attorney and accountant verify that the FDD properly discloses all parent and affiliate companies as required.
• If a parent guarantee is offered, it's important that your attorney review its terms and enforceability.
• Ensure that any required parent financial statements are included and reviewed by your accountant.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD properly discloses the system's predecessor, and Items 3 and 4 do not indicate any history of litigation or bankruptcy related to that predecessor. A lack of transparency about a predecessor's history can conceal past failures, franchisee disputes, or other systemic problems that may have been inherited by the current franchisor.

Potential Mitigations

• Your attorney should always review the predecessor history disclosed in Items 1, 3, and 4.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable historical context.
• A business advisor can assist you in researching the public records of any predecessor company for additional information.

Explanation

This risk was not identified in the FDD package. Item 3 discloses one pending class action lawsuit related to alleged gender discrimination in a local promotion, which is an operational issue rather than a franchise sales dispute. A pattern of lawsuits from franchisees alleging fraud, misrepresentation, or breach of contract is a significant red flag about a franchisor's practices and system health.

Potential Mitigations

• A careful review of Item 3 with your franchise attorney is essential to understand the nature of any disclosed litigation.
• Your attorney can help you assess whether disclosed lawsuits indicate a pattern of systemic problems or isolated disputes.
• It is wise to ask current franchisees about any litigation or widespread disputes they may be aware of.