Explanation

This risk was not identified. H&N LLC was established in 2015 and began franchising the same year, giving it approximately a decade of operational history, which suggests it is beyond the initial startup phase. However, evaluating the system's stability and management experience remains crucial for any franchise investment, regardless of its age.

Potential Mitigations

• A business advisor can help you research the company's history and the track record of its management team in the industry.
• Engaging with a range of franchisees, both new and long-standing, can provide valuable insights into the system's evolution and stability.
• Your accountant should still review the multi-year financial data in Item 21 to assess the system's financial maturity and trends.

Explanation

This specific risk was not identified. Item 2 shows that key executives and area representatives have prior experience in franchising with established brands like Massage Envy and Great Clips. Generally, it is important to assess whether a franchisor's leadership has a solid track record in both their specific industry and in managing a franchise system, as this directly impacts the quality of support and strategy.

Potential Mitigations

• Researching the professional backgrounds of the key management personnel listed in Item 2 is a sound due diligence step for your business advisor.
• During discussions with current franchisees, you should inquire about their direct experiences with the leadership team's competence.
• Your attorney can help you frame questions for the franchisor regarding their management's strategic vision for the brand.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose ownership by a private equity firm. Prospective franchisees should generally be aware that PE ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchisees and the brand, potentially affecting fees, support levels, and the frequency of system sales.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 to understand who ultimately controls the franchise system.
• A business advisor can help you research the ownership's history and track record in the franchise industry.
• Discussions with franchisees can reveal any significant changes in operational philosophy that might suggest a shift in ownership priorities.

Explanation

This specific risk was not identified. Item 1 of the FDD states that H&N LLC does not have a parent company. In cases where a franchisor is a subsidiary of a larger entity, the financial health and influence of that parent company can be material. It is a legal requirement for such parent companies to be disclosed, and in some circumstances, for their financial statements to be included in Item 21.

Potential Mitigations

• Your attorney can help confirm the franchisor's corporate structure and ensure there are no undisclosed controlling entities.
• It is wise to have an accountant review the franchisor's balance sheet for signs of thin capitalization that might suggest reliance on an unlisted parent.
• A business advisor can assist in researching the company's public records to verify its stated ownership structure.

Explanation

This risk was not identified, as Item 1 of the FDD states that H&N LLC does not have any predecessors. When a franchise system has been acquired from a previous owner, it is important to scrutinize the history of that predecessor for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could be inherited by the new franchisor.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessor companies.
• If a predecessor is identified, a business advisor can help you conduct independent research on that company's history and reputation.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable historical context.

Explanation

This specific risk was not identified, as Item 3 states "No litigation is required to be disclosed in this Item." A clean litigation history is a positive indicator. Generally, a pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation would be a significant red flag, suggesting potential systemic issues with the franchisor's sales or operational practices.

Potential Mitigations

• It is a good practice for your attorney to conduct an independent public records search for litigation involving the franchisor.
• During due diligence calls, you can ask current franchisees about their awareness of any disputes within the system.
• A business advisor can help you research online forums or news articles for any reports of franchisee dissatisfaction or legal disputes.