Explanation

The financial statement for HaloHeat Franchising, LLC (HaloHeat) shows it is a newly formed entity with minimal assets ($50 in cash). The viability of the franchisor appears entirely dependent on its parent company, WellZen, Corp., whose financial statements are not provided in this FDD. This presents a significant risk as you cannot independently verify the financial health of the enterprise that controls the brand, owns the operating history, and will be a required supplier.

Potential Mitigations

• Your accountant must help you assess the extreme risk associated with a thinly capitalized franchisor.
• In discussions with your attorney, you should request the parent company's audited financial statements to evaluate the true stability of the system.
• A business advisor can help you weigh the risks of investing in a system where the primary financial entity's health is undisclosed.

Explanation

As a new franchise system, HaloHeat has no franchisee history. Item 20 tables show zero franchised outlets have operated, transferred, or closed. While this means there is no history of high turnover, it also means there is no track record of franchisee success, satisfaction, or profitability. You will be among the first to test the system, which carries its own significant risks.

Potential Mitigations

• A franchise attorney can help you negotiate for protections reflecting the risks of being an early-stage franchisee.
• Since there are no former franchisees to contact, you must rely heavily on your own due diligence and professional advisors (accountant, business advisor).
• Discuss the franchisor's plans for supporting its initial franchisees with your business advisor to gauge their readiness for growth.

Explanation

HaloHeat is a new franchisor with plans for rapid growth, as shown in Item 20, Table 5 projecting six new franchised outlets in the next year. However, the franchisor entity itself has minimal financial resources, as shown in Item 21. This indicates a potential risk that the franchisor's support infrastructure (training, operations, marketing) may not be able to keep pace with rapid expansion, potentially diluting the quality of support you receive.

Potential Mitigations

• Your business advisor can help you question the franchisor about their specific, scalable plans to support a growing number of franchisees.
• Ask your accountant to scrutinize how the franchisor plans to fund the necessary support infrastructure for its projected growth.
• Engaging a franchise attorney to negotiate for specific service level commitments in your agreement could provide some protection.

Explanation

HaloHeat is a new franchisor that began offering franchises as of the FDD issuance date. It has no operating history as a franchisor, and its parent company has only operated one similar location for a short time. The business model is unproven in a franchise context, and systems and support may be underdeveloped. Investing in a new, unproven system carries a significantly higher risk of business failure compared to established brands.

Potential Mitigations

• A thorough investigation of the management team's prior industry and business experience is critical and should be reviewed with your business advisor.
• Have your accountant perform a highly conservative financial analysis, as there is no franchisee performance data to rely upon.
• It is crucial to have a franchise attorney negotiate for more favorable terms and franchisee protections to offset the higher risk.

Explanation

The executives, Donna Jolly and Steven Evans, have experience in the wellness and fitness industries. However, Item 2 and Item 1 of the FDD indicate that neither they nor the HaloHeat entity have prior experience in managing a franchise system. Lack of direct franchising experience can lead to challenges in providing effective franchisee support, training, and strategic leadership for a growing system, which increases your risk as a franchisee.

Potential Mitigations

• A business advisor can help you assess whether the management team's other business experience is transferable to running a franchise system.
• Ask the franchisor if they have retained experienced franchise consultants or staff to guide them in developing their system.
• Consulting with a franchise attorney is important to ensure the franchise agreement provides clear and robust support obligations.

Explanation

The FDD discloses that HaloHeat is a subsidiary of WellZen, Corp. However, the FDD only provides an opening balance sheet for the franchisor entity, which has minimal assets, and does not include the financial statements for the parent company. Since the parent operates the only existing location and owns the trademarks, its financial health is critical to the system's stability, but it remains undisclosed. This creates a significant information gap and risk.

Potential Mitigations

• Your attorney should strongly advise you on the risks of proceeding without the parent company's financial statements for review.
• It is crucial to request, through your attorney, the audited financial statements of the parent company, WellZen, Corp.
• An accountant cannot properly assess the financial stability of the enterprise without the parent company's financial information.