Explanation

This risk was not identified in the FDD package. Item 20 data shows the system is shrinking rather than experiencing rapid growth. A franchisor expanding too quickly can strain its ability to provide adequate support to new franchisees. This can lead to issues with training, site selection, and ongoing operational assistance, potentially harming the entire system.

Potential Mitigations

• Your business advisor can help evaluate whether a franchisor's support infrastructure is adequate for its current size and any future growth.
• Understanding a franchisor's strategic growth plan is a key due diligence step to discuss with your attorney.
• Reviewing a franchisor's financial statements with an accountant can reveal if they have the capital to support system growth.

Explanation

This risk was not identified in the FDD package. The franchisor, Hair Saloon Franchise Company (Hair Saloon FC), and its related entities have been in business since 1996 and franchising since 2001. The management team has significant tenure with the company. While the system is small, it does not appear to be new or unproven.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you assess the franchisor's operational history and track record.
• Having an attorney review the management team's experience as disclosed in Item 2 is a crucial part of due diligence.
• For new systems, it is important for your accountant to scrutinize the capitalization and financial stability of the franchisor.

Explanation

This risk was not identified in the FDD package. The business model, a premium hair salon for men, operates in a well-established and sustainable market. While style preferences change, the core service of providing haircuts is not considered a short-term fad. This suggests a lower risk of the underlying consumer demand disappearing suddenly.

Potential Mitigations

• Your business advisor can help research the long-term viability and market trends for any industry you consider entering.
• It is wise to assess a franchisor's plans for innovation and adaptation to stay relevant in a changing market.
• An accountant can help you model the financial resilience of a business concept during various economic conditions.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the executive team has substantial and long-term experience with the Hair Saloon brand and in the hair care industry. Inexperienced management can be a significant risk, as it may 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 critical due diligence step.
• Speaking with existing franchisees provides valuable insight into the competence and effectiveness of the franchisor's leadership team.
• Your attorney can help you assess if the management team's experience is relevant to both the industry and to managing a franchise system.

Explanation

This risk was not identified in the FDD package. The franchisor and its parent company appear to be privately held by their founders, not a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially at the expense of franchisee profitability.

Potential Mitigations

• Understanding the ownership structure of the franchisor is a key piece of due diligence your attorney should investigate.
• If a franchisor is owned by a private equity firm, your business advisor can help you research that firm's track record with other brands.
• It is important to discuss with existing franchisees any changes in support or culture after an acquisition by a private equity firm.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent company, H.S. Holdings, and its audited financial statements and a Guaranty of Performance are included in Exhibit H. Failing to disclose a parent company or its financials, when required, can obscure a complete picture of the franchisor's financial backing and stability.

Potential Mitigations

• Your attorney should verify that the ownership structure disclosed in Item 1 is complete and transparent.
• If a parent company exists and provides guarantees, it is critical for your accountant to review their financial statements.
• Ensuring compliance with all disclosure rules regarding parent companies is a task for your franchise attorney.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. The history of the brand appears to be contained within the currently affiliated companies. Undisclosed or problematic predecessor history could hide past failures or litigation relevant to your investment decision.

Potential Mitigations

• Your attorney should always confirm and review any disclosures about predecessor companies in Items 1, 3, and 4.
• If a system has predecessors, your business advisor can help you research their history and reputation.
• Speaking with long-term franchisees can provide insight into the system's history under previous ownership.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, particularly claims of fraud or misrepresentation brought by other franchisees, can be a major red flag about the franchisor's practices and the health of the system.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• Even with no disclosed litigation, your business advisor might suggest searching public records for legal disputes involving the franchisor.
• Discussing any past or present disputes with current and former franchisees can provide valuable context.