Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide adequate support to all units. It is important to assess whether a franchisor's support infrastructure, including training staff and field support personnel, is keeping pace with its expansion to ensure new and existing franchisees receive the assistance they need to operate successfully.

Potential Mitigations

• A business advisor can help you analyze the growth trajectory in Item 20 against the support resources described in Item 11.
• Speaking with both new and established franchisees can provide insight into whether support levels have remained consistent during growth.
• An accountant can review the franchisor's financials to see if investment in support infrastructure corresponds with system growth.

Explanation

This risk was not identified in the FDD package. Health Mart and its parent, McKesson Corporation, have extensive experience in the pharmacy and healthcare industries. An unproven system or inexperienced management team presents higher risks, as they may lack refined operational procedures, brand recognition, and the ability to provide effective franchisee support. This can increase the likelihood of business failure for franchisees.

Potential Mitigations

• An attorney should always help you investigate the business experience of the franchisor's key personnel as listed in Item 2.
• Your business advisor can help you assess whether the management team's experience is relevant to the specific industry and to franchising.
• Contacting existing franchisees is a good way to gauge their confidence in the management team's leadership and support.

Explanation

This risk was not identified in the FDD package. The retail pharmacy business is a long-established industry. A fad-based business carries the risk that its popularity may be short-lived. A prospective franchisee could be left with a long-term contractual obligation and a significant investment in a business with declining consumer interest, jeopardizing the potential for long-term profitability and return on investment.

Potential Mitigations

• It is prudent to have a business advisor help you conduct independent market research to assess the long-term consumer demand for the product or service.
• Your attorney should review the franchise agreement for the length of your contractual commitment.
• An accountant can help you model the financial impact if sales were to decline after an initial trend period.

Explanation

This risk was not identified in the FDD package. The management team listed in Item 2 appears to have extensive experience in the pharmacy and healthcare industries. Inexperienced management can be a significant risk factor, as it may lead to poor strategic decisions, inadequate franchisee support, and an underdeveloped operational system, which can negatively impact franchisee success.

Potential Mitigations

• A business advisor can help you research the backgrounds of the key executives listed in Item 2 of the FDD.
• Speaking with current franchisees can provide valuable insight into their perception of the management team's competence and support.
• Your attorney can help you understand the management structure and any recent changes in leadership.

Explanation

This risk was not identified in the FDD package; HMSI is a wholly-owned subsidiary of McKesson, a publicly-traded company, not a private equity firm. Private equity ownership can introduce risks related to short-term profit motives, which may lead to increased fees, reduced support, or a quick sale of the franchise system. These priorities might not align with the long-term health of franchisees' businesses.

Potential Mitigations

• It is wise to have your attorney investigate the ownership structure of the franchisor as disclosed in Item 1.
• If private equity is involved, a business advisor can help you research the firm's history with other franchise brands.
• Consulting with franchisees who have been through a private equity acquisition can provide valuable perspectives.

Explanation

This risk was not identified in the FDD package. Health Mart Systems, Inc. was incorporated in 1997, and its parent company has a long history. Predecessor history is important because it can reveal inherited issues, such as past litigation, bankruptcies, or a pattern of franchisee failure, that might not be apparent when looking only at the current franchisor entity.

Potential Mitigations

• It is important for your attorney to review Item 1 for any mention of predecessors and their business history.
• If predecessors are listed, a business advisor can assist in researching their track record and reputation.
• Speaking with long-term franchisees about their experience under previous ownership can provide valuable context.