Explanation

This risk was not identified. Financial statements in Exhibit B for the parent guarantor, TMC Franchise Corporation (TMC), show consistent profitability and positive net worth. The franchisor appears to be part of a large, financially stable corporate structure. Financial stability is important as it indicates the franchisor can support the system and meet its obligations.

Potential Mitigations

• An accountant should still review the financials and footnotes to confirm stability.
• Discuss the strength and enforceability of the parent company's guarantee with your attorney.
• A business advisor can help assess if the franchisor's resources are adequate for its system size and support commitments.

Explanation

This risk was not identified. The data in Item 20 indicates the franchise system has been contracting in size, not growing rapidly. While rapid growth can strain a franchisor's support systems, a shrinking system presents its own set of risks, such as declining brand value or potential instability, which are addressed under the 'High Franchisee Turnover' risk.

Potential Mitigations

• It is valuable to have a business advisor analyze system trends to understand the reasons for contraction or slow growth.
• Legal counsel can discuss the implications of a shrinking system on your investment and long-term brand value.
• An accountant should review the franchisor's financials to see if they are investing in growth initiatives.

Explanation

This risk was not identified. Holiday Stationstores has been in operation for many years, and the franchisor, Holiday Diversified Services, LLC (HDS), has been franchising since 1989. While it is now part of the larger Alimentation Couche-Tard family of brands, the core business system is well-established and not new or unproven. Unproven systems carry higher risks of failure.

Potential Mitigations

• A business advisor can still help you research the history and reputation of the brand in your target market.
• Your attorney can review the implications of the new ownership structure by a large parent company.
• Speaking with long-standing franchisees provides insight into the system's historical stability and evolution.

Explanation

This risk does not appear to be present. The convenience store and gas station industry is a mature and established market with consistent consumer demand, not a business model based on a recent or fleeting trend. The long operational history of the brand further suggests it is not a fad. Investing in a fad business is risky as consumer interest can disappear, leaving you with contractual obligations.

Potential Mitigations

• Assess the long-term market demand for the product or service independently with your business advisor.
• Evaluate the franchisor's plans for innovation and adaptation to stay relevant over the long term.
• Consider the sustainability of the business model beyond current trends with help from your financial advisor.

Explanation

This risk was not identified. Item 2 shows that the key management personnel for the franchisor and its parent companies have extensive experience in the convenience store and fuel retailing industry. A management team with deep industry and franchising experience is generally better equipped to provide effective support and strategic direction for the franchise system.

Potential Mitigations

• You should still research the reputation and track record of the key executives listed in Item 2 with your business advisor.
• Discuss the quality and accessibility of management with current franchisees.
• Your attorney can help assess if management's experience aligns with the specific support obligations outlined in the contract.

Explanation

This risk was not identified. The FDD in Item 1 clearly discloses the parent company structure, and the audited financial statements and a guarantee from the direct parent, TMC Franchise Corporation, are provided in Exhibit B. Proper disclosure allows you to assess the financial strength of the entities backing your franchise. A failure to disclose a parent can hide financial instability.

Potential Mitigations

• An accountant should always confirm that the financials provided are for the correct entity, especially the one guaranteeing the franchisor's obligations.
• Your attorney can verify the corporate structure if there is any ambiguity about controlling entities.
• Always ensure that any guarantees from a parent company are properly executed and legally binding.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the franchisor's history and its relationship with its parent companies, which were involved in a 2017 transaction. No other predecessors are mentioned. A clear history is important because undisclosed predecessor issues, such as litigation or high failure rates, could carry over to the current system.

Potential Mitigations

• Reviewing a brand's history, including any predecessors, with your attorney is a good due diligence practice.
• A business advisor can help you research the public reputation of any predecessor companies if they are disclosed.
• Asking long-term franchisees about their experience under any previous ownership provides valuable historical context.