Explanation

While financial statements for the franchisor, HQ Franchising Corporation (HireQuest), are not provided, its publicly traded parent, HireQuest, Inc., provides an unconditional guaranty of performance. The parent's audited financials for 2022-2024 are included and show consistent profitability and a strong balance sheet with positive stockholder equity. This strong parental guaranty significantly mitigates the risk of franchisor financial instability, though direct franchisor financials are not available for review.

Potential Mitigations

• Your accountant should review the parent company's audited financial statements in detail, including all notes, to assess its overall financial health and ability to support the system.
• A franchise attorney can confirm the strength and enforceability of the parent company's unconditional guaranty.
• Discuss the financial relationship between the parent and the franchisor with your business advisor to understand how resources are allocated.

Explanation

The franchisee turnover rates disclosed in Item 20 tables appear to be relatively low and stable over the last three years. For example, in 2024, the total number of outlets ceasing operations for termination, non-renewal, or other reasons was 3 out of 82, a churn rate of approximately 3.7%. Low turnover can be an indicator of system health and franchisee satisfaction, so this specific risk was not identified as a major concern.

Potential Mitigations

• To understand the context behind the numbers, your business advisor should encourage you to contact current and former franchisees listed in Exhibit B.
• Have your attorney review the definitions and notes in Item 20 to understand how the franchisor categorizes different types of departures.
• Ask the franchisor to explain any significant fluctuations or trends in the outlet numbers, even if the overall rate seems low.

Explanation

The risk of excessively rapid growth straining the franchisor's support systems was not identified. The outlet count in Item 20 shows moderate and controlled growth over the past three years. The parent company's financial statements in Item 21 appear to show sufficient resources to support the current system size and a measured pace of expansion. Therefore, this does not appear to be a current risk.

Potential Mitigations

• It is still wise to discuss the franchisor’s capacity for providing support with both new and established franchisees.
• Your business advisor can help you question the franchisor about their future growth plans and how they intend to scale support infrastructure accordingly.
• An accountant’s review of the franchisor’s financial statements can offer insight into their investment in support systems relative to their growth.

Explanation

This risk was not identified. Item 1 indicates the predecessor companies have been operating and franchising in the temporary staffing industry since at least 2003. Item 2 shows that the key executives have extensive, long-term experience in the staffing and franchise industries. The system appears to be mature and operated by an experienced management team, which is a positive factor.

Potential Mitigations

• Even with an established system, a business advisor can help you investigate the franchisor's reputation within the industry.
• Your attorney should still review the entire FDD for any signs of recent, potentially disruptive changes in ownership or strategy.
• Engaging with long-term franchisees can provide valuable historical perspective on the system's evolution and management's performance.

Explanation

The risk of the business being a fad was not identified. Item 1 describes the business as providing temporary employment and staffing services, primarily for the industrial and construction sectors. This is a long-established industry that serves fundamental business needs and is not reliant on short-term trends. Therefore, the business model appears to have long-term market relevance and sustainability.

Potential Mitigations

• Your business advisor can help you research the long-term economic outlook for the temporary staffing industry in your specific local market.
• Discuss the stability and diversity of the customer base with existing franchisees to gauge the business's resilience to economic cycles.
• It is always prudent for an accountant to help you model financial performance under various economic scenarios.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the principal officers and directors of the franchisor's parent company, HireQuest, Inc. The executive team, including the CEO, CLO, and VP of Operations, demonstrates extensive and long-standing experience within both the staffing industry and the franchise business model, which is a significant positive factor.

Potential Mitigations

• A business advisor can still help you perform independent research on the reputation and track record of the key executives.
• When speaking with current franchisees, it's beneficial to ask about their direct experiences with the management team's support and strategic direction.
• Your attorney can review the FDD for any recent, high-level management changes that might not be reflected in the biographical data.

Explanation

This risk was not identified. Item 1 indicates that the franchisor is a subsidiary of HireQuest, Inc., which is a publicly traded company. While this involves ownership by outside investors, it is not a typical private equity structure focused on short-term exits. The company has a long operating history, and the management team appears stable. There are no direct indications of policies that would prioritize short-term returns over system health.

Potential Mitigations

• Your accountant should analyze the parent company's public financial reports to understand its financial strategies and priorities.
• It is wise to discuss with current franchisees whether they have observed any changes in franchisor behavior or support levels over time.
• A franchise attorney can review the assignment clauses in the Franchise Agreement to clarify your rights if the company is sold.

Explanation

This risk was not identified. Item 1 clearly discloses that HQ Franchising Corporation is a subsidiary of HireQuest, Inc. While the franchisor's own financials are not provided, Item 21 and Exhibit E provide the audited financials for the parent company and an unconditional guaranty of performance from the parent. This level of disclosure provides the necessary financial information to assess the stability of the entity backing the franchise obligations.

Potential Mitigations

• It is essential that your accountant reviews the provided parent company financial statements in their entirety.
• Your attorney should confirm the enforceability and scope of the parent company guaranty.
• A business advisor can help you understand the corporate structure and the relationship between the parent and the franchisor subsidiary.

Explanation

This risk was not identified as a concern. Item 1 provides a detailed history of the franchisor, its parent, and predecessor companies, including mergers and acquisitions. This history is referenced in other sections, such as Item 3 (Litigation) and Item 20 (Outlets), and appears to be transparent. There are no signs that negative historical information has been intentionally obscured or omitted.

Potential Mitigations

• Your attorney should still review the predecessor information across all relevant FDD items to ensure consistency and completeness.
• When speaking with long-tenured franchisees, asking about their experience under any predecessor companies can provide valuable context.
• A business advisor can assist in researching the public records or reputation of any predecessor entities mentioned.

Explanation

Item 3 discloses one litigation case filed in 2021 by the franchisor against a former franchisee for breach of contract, conversion, and other related claims. The case resulted in a consent judgment in favor of the franchisor. While any litigation is noteworthy, a single, franchisor-initiated enforcement action that was resolved in its favor does not constitute a pattern of franchisee-initiated lawsuits alleging fraud or systemic problems. Therefore, this risk is considered low.

Potential Mitigations

• Your attorney should review the details of the disclosed litigation to understand its nature and outcome fully.
• It's prudent to ask the franchisor about its general approach to dispute resolution with franchisees.
• When conducting due diligence, you can ask other franchisees about their experiences with franchisor enforcement actions.