Explanation

The in-home care industry is established, but a new franchise must prove its specific business model is sustainable. This risk is not prominent in the FDD, as the demand for senior care is generally considered long-term rather than a fad. However, you should still evaluate HCAN's specific service offerings and marketing approach to ensure they have a competitive and durable advantage in the marketplace and are not based on a short-lived business gimmick.

Potential Mitigations

• With your business advisor, research the long-term demand for the specific services HCAN offers in your local market.
• Assess HCAN's plans for innovation and adaptation to changes in the healthcare and senior care industries.
• Analyze the business model's resilience to economic shifts and competitive pressures with your financial advisor.

Explanation

The risk of inexperienced management was not prominently identified. Item 2 shows that key personnel, such as President Mark Goetz, have prior executive experience in the home care industry, including at well-known companies like Home Instead Senior Care and The Asbury Group. This suggests the leadership team possesses relevant industry knowledge, which may reduce risks associated with operational and strategic inexperience. However, their experience specifically in *franchising* should still be carefully evaluated.

Potential Mitigations

• When speaking with current franchisees, ask specifically about their assessment of the management team's competence and support.
• Your business advisor should help you research the track records of the executives listed in Item 2 at their previous companies.
• Discuss the management team's philosophy and strategic vision for the franchise system directly with them.

Explanation

This risk was not identified. Item 1 does not disclose ownership by a private equity firm. The franchisor is presented as a corporation with individual leaders listed in Item 2. Therefore, the specific risks associated with private equity ownership, such as a focus on short-term returns over long-term system health or a quick sale of the company, do not appear to be present based on the FDD's disclosures.

Potential Mitigations

• Your attorney can confirm the corporate ownership structure to ensure there are no undisclosed controlling entities.
• It is still wise to have your attorney review the 'Assignment' clause in the franchise agreement to understand who could own the system in the future.
• Engage a business advisor to research the backgrounds of the disclosed owners and management for any ties to private equity.

Explanation

This risk was not identified. The FDD discloses that HCAN does not have a parent company. It does disclose an affiliate, HCAN-IP, LLC, which owns the intellectual property, but this relationship is explained. Because there is no parent company, the issue of needing to see a parent's financial statements or having them guarantee performance is not applicable to this FDD.

Potential Mitigations

• Your attorney can verify the corporate structure and confirm the absence of a parent company through public records.
• Always ask your accountant to review the provided financials to ensure the disclosed entity appears to be the primary operator.
• Understand the role of any disclosed affiliates and have your attorney review the agreements that govern those relationships.

Explanation

This risk was not identified in the FDD. Item 1 states that HCAN does not have a predecessor. As a relatively new company formed in 2020, it appears to have started its own system rather than acquiring one from a prior entity. Therefore, risks associated with a negative history from a predecessor, such as hidden litigation, bankruptcy, or high franchisee failure rates under previous ownership, are not applicable here.

Potential Mitigations

• Your attorney can perform a background check on the franchisor entity to confirm it has no undisclosed predecessor history.
• In your calls with the earliest franchisees, you can ask about the origins of the system to verify the information in Item 1.
• A business advisor can help research the history of the key individuals in Item 2 to see if they were involved with prior, similar companies.

Explanation

This risk was not identified. Item 3 of the FDD states, 'No litigation information is required to be disclosed in this Item,' and Item 4 states the same for bankruptcy. This indicates that HCAN has not been involved in any material litigation with franchisees or regulators concerning fraud, franchise law violations, or other significant claims, nor has it experienced bankruptcy. The absence of such a history is a positive factor, though it is also expected for a young system.

Potential Mitigations

• Your attorney can conduct an independent search of court records to verify the accuracy of the Item 3 litigation disclosures.
• Even without disclosed litigation, it is crucial to speak with current and former franchisees about any disputes or disagreements they have had.
• Continually monitor for any litigation that may arise after the FDD's issuance date by setting up news alerts for the franchisor.