Explanation

This risk was not identified. Item 20 data indicates the franchise system has been shrinking over the past two years, not experiencing rapid growth. Generally, rapid growth can be a risk if a franchisor's support infrastructure cannot keep pace, potentially leading to inadequate training and assistance for new franchisees. However, the opposite trend appears to be the case here.

Potential Mitigations

• A business advisor can help you evaluate a franchisor's growth strategy and its capacity to support the franchisee network.
• Consulting an accountant to review the franchisor's financial investment in support systems is a prudent step.
• Your attorney should review the franchisor's contractual obligations for providing support and training.

Explanation

The business of garage renovation is part of the broader home services industry and does not appear to be a short-term fad. This type of risk is more common with businesses tied to very current, novelty trends that may not have sustained consumer demand. A key consideration for any franchise is its long-term market relevance and ability to adapt to changing consumer tastes.

Potential Mitigations

• A business advisor can help you research the long-term market demand for any franchise's products or services.
• Evaluate the franchisor's history of innovation and plans for future product development.
• It is wise to consider a business model's resilience to economic shifts with your financial advisor.

Explanation

This specific risk was not identified, as the management team detailed in Item 2 appears to have significant experience in the home services and garage renovation industry. Generally, a lack of relevant industry or franchising experience in a franchisor's leadership team can be a major red flag, potentially leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• Always have a business advisor help you vet the backgrounds and specific franchising experience of a franchisor's key executives.
• Inquire about the stability of the management team and any recent high-level departures.
• Speaking with current franchisees about their confidence in the leadership team is a key due diligence step.

Explanation

This risk was not identified. Item 1 indicates the franchisor is owned by a family trust, not a private equity firm. When a franchisor is PE-owned, there can be a risk that management decisions prioritize short-term investor returns over the long-term health of the system and franchisee profitability. This is not the ownership structure indicated here.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's track record with other franchise systems.
• Your attorney should review the franchise agreement for terms that facilitate a quick sale of the system.
• Discuss any changes in operations since a PE acquisition with current franchisees.

Explanation

This risk does not appear to be present. Item 1 discloses the parent company and several affiliates. The franchisor has provided its own audited financial statements. Failure to disclose a parent company or provide its financial statements when required can obscure the true financial backing and stability of a franchise system. That does not seem to be the case in this FDD.

Potential Mitigations

• Your attorney should verify the corporate structure to ensure all relevant parent and affiliate companies are properly disclosed.
• An accountant can help determine if the parent company's financials should have been included based on FTC rules.
• Always question the role and influence of any parent company on the franchisor's operations.

Explanation

This risk was not identified, as Item 1 does not list any predecessors for the franchisor, Hello Garage Franchising, LLC. When a franchisor has a predecessor, it is important to review the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate inherited problems within the system. This FDD does not indicate such a history for the franchisor entity.

Potential Mitigations

• An attorney should always carefully review Item 1 of an FDD for any mention of predecessors.
• If a predecessor exists, researching their business history for red flags is a critical step for a business advisor.
• Inquire with long-term franchisees about their experience under any previous ownership or corporate structure.

Explanation

This risk is not present. Item 3 of the FDD states that there is no litigation required to be disclosed. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or misrepresentation, or a high volume of lawsuits initiated by the franchisor against franchisees, can be a major warning sign of systemic problems. This FDD does not disclose any such litigation history.

Potential Mitigations

• Your attorney should always carefully review the details of any disclosed litigation in Item 3.
• Even if no litigation is disclosed, conducting a public records search for lawsuits involving the franchisor can be a prudent step for your attorney.
• Discuss any disclosed litigation with current and former franchisees to understand the context.