Explanation

This risk was not identified in the FDD Package. The franchisor's audited financial statements show consistent profitability and a healthy balance sheet. A financially stable franchisor is better positioned to provide ongoing support, invest in brand development, and weather economic downturns, which is a crucial factor for your long-term success.

Potential Mitigations

• Even with positive financials, having your accountant review the statements and footnotes for any subtle risks or concerning trends is a prudent step.
• It is beneficial to ask your business advisor to assess whether the franchisor's financial resources are sufficient to support its stated growth and support plans.

Explanation

This risk was not identified in the FDD Package. Analysis of Item 20 data for the most recent year shows a low negative turnover rate of approximately 3.9%. High franchisee turnover can be a significant red flag indicating systemic problems such as unprofitability or poor franchisor support, so a low rate is a positive indicator.

Potential Mitigations

• You should discuss the 14 franchisee-to-franchisee transfers in 2024 with your business advisor to understand if they could indicate any underlying issues not apparent from the low termination rate.
• Contacting a diverse group of current and former franchisees listed in Item 20 is a valuable way to gather firsthand accounts of their experiences within the system.

Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows the franchise system has been stable or slightly shrinking in size over the last three years, not growing rapidly. While growth can be positive, excessively rapid expansion can strain a franchisor's ability to provide adequate support to all franchisees.

Potential Mitigations

• A conversation with your business advisor can help you assess whether the franchisor's current size and stable growth trajectory align with your investment goals.
• Asking existing franchisees about the quality and timeliness of franchisor support can provide insight into whether the company's resources are well-matched to the system's needs.

Explanation

The core services of therapeutic massage and skincare are well-established industries. However, the new HWR model adds 'cutting-edge touchless holistic therapies.' While this is part of a modern wellness trend, these specific services may have a shorter-term appeal compared to the core offerings. Your business's long-term success could be tied to the lasting power of these newer, potentially faddish services.

Potential Mitigations

• It would be wise to research the long-term consumer demand for 'touchless holistic therapies' in your local market with a business advisor.
• Asking the franchisor about their research and development plans for future services can provide insight into their strategy for staying current.
• Your financial advisor can help model different scenarios based on the potential success or decline of these newer service lines.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the key executives and board members have extensive, long-term experience with both the company and the franchising industry. Experienced leadership is important as it can lead to better strategic decisions, more effective support systems, and greater overall stability for the franchise network.

Potential Mitigations

• Engaging a business advisor to review the management team's background can provide an independent perspective on their qualifications and track record.
• When speaking with existing franchisees, it is useful to ask about their direct experiences and the quality of their interactions with the leadership team.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is owned by SWG International, LLC, and the principals appear to be the key executives listed in Item 2. There is no disclosure of ownership by a private equity firm. This matters because PE ownership can sometimes lead to a focus on short-term profitability over the long-term health of the system.

Potential Mitigations

• Your attorney can help you verify the corporate ownership structure and identify the ultimate decision-makers.
• It is still beneficial to discuss with current franchisees the franchisor's long-term vision and commitment to franchisee success.

Explanation

This risk was not identified in the FDD Package. The parent company is disclosed in Item 1, and the provided financial statements in Item 21 are for the franchisor entity itself. There is no indication that the parent company guarantees the franchisor's obligations in a way that would require its separate financials to be disclosed. A complete financial picture is necessary to assess the true stability of the entity you are contracting with.

Potential Mitigations

• Your accountant should confirm that the provided financials are for the correct legal entity you are entering into an agreement with.
• It is advisable for your attorney to review the FDD to ensure all required disclosures regarding parent companies and affiliates have been made correctly.

Explanation

This risk was not identified in the FDD Package. The franchisor states in Item 1 that it has no predecessors, and the litigation and bankruptcy histories in Items 3 and 4 do not indicate issues inherited from a prior entity. A clean predecessor history is important as it suggests you are not investing in a system with unresolved historical problems or a track record of failure under a different name.

Potential Mitigations

• Verifying the franchisor's corporate history through public records searches can be a useful step for your attorney to undertake.
• Asking long-term franchisees about the history of the company and any previous ownership structures can provide valuable context.