Explanation

The franchise system has experienced steady growth over the past three years, increasing from 304 to 344 outlets. While growth can be positive, this analysis did not identify signs that HHFS is expanding too quickly for its support infrastructure to handle. However, rapid growth is a factor to monitor in any franchise system.

Potential Mitigations

• Questioning the franchisor about their plans for scaling support infrastructure to match continued growth can be a useful exercise for your business advisor.
• In your discussions with current franchisees, inquire about the current quality and responsiveness of the franchisor's support systems.
• Your accountant can review the franchisor's financials to assess if they appear to have the resources to support ongoing growth.

Explanation

This risk was not identified in the FDD package. HHFS has been franchising since 1997 and has a substantial number of outlets, indicating it is an established system. An unproven system can be risky due to the lack of a track record, minimal brand recognition, and potentially underdeveloped support systems, which can increase the chance of business failure.

Potential Mitigations

• For any franchise, it is wise to have an attorney investigate the franchisor's operational history and corporate background.
• Engaging a business advisor to assess the maturity and stability of the franchise system is a recommended step.
• Your accountant can review the financial statements to verify the franchisor has a stable history of operations.

Explanation

This risk was not identified in the FDD package. The home care industry serves a long-term, growing demographic need, suggesting the business model is not based on a short-term trend or fad. A business based on a fad faces the risk of a sharp decline in consumer interest, which could jeopardize your long-term investment even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term consumer demand for the services offered.
• When evaluating any franchise, it's beneficial to assess the franchisor's plans for innovation and adaptation to market changes.
• Your accountant can help you model the financial resilience of the business under various economic conditions.

Explanation

The executives listed in Item 2 appear to have extensive experience in the home care and franchising industries. For example, the CEO, Emma Dickison, has been with the company since 2007 in various high-level roles. This level of experience is a positive factor. Inexperienced management can be a risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• It is always a good practice to have your business advisor help you research the backgrounds of the key management team members.
• During your due diligence calls with current franchisees, you should inquire about their perception of the management team's competence and support.
• Your attorney can review the FDD for any recent, significant changes in the management team that might signal instability.

Explanation

HHFS is part of a complex, multi-layered parent company structure. The financial statements provided are for the consolidated parent, Home Helpers Holdings, Inc., and a Guarantee of Performance from this parent is included as Exhibit Y. While the financials are disclosed, the complexity of the corporate structure can sometimes obscure a complete understanding of financial health and inter-company dependencies.

Potential Mitigations

• Your accountant should carefully analyze the consolidated financial statements and the accompanying footnotes to understand the complete financial picture.
• It is important to have your attorney review the parent company guarantee to assess its strength and enforceability.
• A business advisor can help you understand the implications of the multi-layered corporate structure on franchisor stability and support.

Explanation

This risk was not identified in the FDD package. Item 1 does not list any predecessors. A predecessor is a company from which the franchisor acquired a major portion of its assets. A history of predecessors with negative records in areas like litigation or bankruptcy could indicate inherited problems for the franchise system. It is important to review this information to understand the full lineage and historical health of the brand.

Potential Mitigations

• In any FDD review, your attorney should confirm the predecessor history disclosed in Item 1.
• If predecessors are listed, it's wise to have a business advisor research their history and reputation.
• Questioning long-term franchisees about their experience under any former ownership can provide valuable context.