Explanation

This risk was not identified. The data in Item 20 shows a very low rate of franchisee turnover over the last three years. The numbers for terminations, non-renewals, and other cessations are minimal for a system of this size, which generally suggests franchisee stability and satisfaction. It is always important to review this data for signs of systemic problems.

Potential Mitigations

• When evaluating any franchise, it is wise to have an accountant calculate the turnover rate from Item 20 data to check for red flags.
• Contacting former franchisees listed in the FDD can provide valuable insight into why they left the system, which is a task your business advisor can help with.
• Your attorney should review the definitions of termination and cessation in the Franchise Agreement to understand the context of the Item 20 data.

Explanation

The risk of excessively rapid growth was not identified. Item 20 data indicates that the franchise system has been growing at a very slow and stable pace over the past three years. This level of growth for a mature system suggests that the franchisor's support infrastructure is unlikely to be strained by adding new franchisees, which is a positive factor for prospective owners.

Potential Mitigations

• For any franchise, your accountant should compare the rate of unit growth in Item 20 with the franchisor's financial capacity in Item 21 to support that growth.
• A business advisor can help you assess whether a franchisor's support systems are keeping pace with its expansion.
• Speaking with new franchisees about the quality of their initial training and support is a key due diligence step your attorney can help prepare for.

Explanation

This risk was not identified. Home Instead has been franchising since 1995 and has a large, mature system with over 600 U.S. franchises, as detailed in Items 1 and 20. This extensive history provides a long track record of operations, a well-developed brand, and established support systems. An unproven system would present a higher risk of failure or inadequate support.

Potential Mitigations

• When evaluating a newer franchise system, it is crucial for a business advisor to help you scrutinize the franchisor's operational history and the viability of its business model.
• Your accountant should place extra emphasis on the financial stability and capitalization of a new franchisor.
• An attorney should review if a newer franchisor offers more favorable terms to early adopters to compensate for the higher risk.

Explanation

The risk of this being a fad business was not identified. The franchise operates in the in-home senior care industry, which is supported by strong, long-term demographic trends of an aging population. This suggests sustained, rather than fleeting, demand for its services. A fad business, by contrast, relies on a temporary trend, posing a significant risk to long-term investment.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm long-term demand for any franchise's core services.
• When considering any business, your financial advisor should help you evaluate its resilience to economic cycles and changing consumer tastes.
• An attorney can review the franchise term to ensure it aligns with the expected lifespan of the business concept.

Explanation

This risk was not identified. Item 2 details the backgrounds of the executive team, showing they possess extensive experience in franchising, operations, technology, and management with major corporations like Yum! Brands, Amazon, and Honor Technology, Inc. Inexperienced leadership would present a risk of poor strategic decisions and inadequate support, which does not appear to be the case here.

Potential Mitigations

• For any franchise, your business advisor should help you research the professional backgrounds of the key management personnel listed in Item 2.
• It is always valuable to ask current franchisees about their perception of the management team's competence and vision.
• An attorney can help investigate if there has been high turnover in key management positions, which could be a red flag.

Explanation

This risk was not identified, as the franchisor states in Item 1 that it has no predecessors. In cases where a franchisor has acquired the system from a previous entity, it is important to review the history of that predecessor for any signs of trouble, such as litigation or high franchisee failure rates, as these could indicate inherited systemic problems.

Potential Mitigations

• If a franchisor discloses a predecessor, your attorney should carefully examine the disclosed history in Items 1, 3, 4, and 20.
• A business advisor can help you conduct independent research on a predecessor's reputation and historical performance.
• It's wise to ask long-tenured franchisees about their experiences under any previous ownership.

Explanation

This risk was not identified. Item 3 discloses only three lawsuits over the last decade for a very large system, which is a low number. The cases described primarily involve the franchisor suing former franchisees to enforce post-termination obligations after they failed to renew their agreements. This does not indicate a pattern of franchisee-initiated litigation alleging fraud or systemic problems, which would be a significant red flag.

Potential Mitigations

• Your attorney should always review Item 3 litigation history to understand the nature of disputes in a franchise system.
• Even with a clean record, consulting a business advisor to discuss common dispute areas with current franchisees is prudent.
• An accountant can help assess if litigation costs disclosed in the financial statements are a significant drain on the franchisor.