Explanation

The franchisor's audited financial statements do not indicate financial instability. HomeWell Franchising Inc. (HomeWell) reports positive and growing revenue, net income, and stockholder equity for the 2024 fiscal year. Royalties, rather than initial franchise fees, are the primary source of revenue, which is a positive indicator of system health. Therefore, the risk of the franchisor being unable to meet its support obligations due to financial weakness appears low at this time.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's complete financial statements, including all footnotes and the auditor's report.
• Discuss the franchisor's financial health and capitalization with your financial advisor to understand their capacity to support the system long-term.
• Ask your attorney to verify if any state has required the franchisor to post a bond due to past financial concerns.

Explanation

This risk was not identified. The franchisor has been in operation since 2002 and franchising since 2003, indicating it is an established system, not a startup. An unproven system would carry higher risks related to the viability of the business model, brand recognition, and the adequacy of support systems, as there would be a limited track record of franchisee success.

Potential Mitigations

• For any franchise, it is wise to have a business advisor help you evaluate the maturity and track record of the specific franchise system.
• Your accountant can assess the franchisor's financial statements for signs of stability and longevity.
• Speaking with the longest-operating franchisees can provide valuable insight into the system's evolution and stability.

Explanation

This risk was not identified. The business of providing in-home care services for seniors is based on long-term demographic trends and is considered a stable, growing industry rather than a short-term fad. A fad-based business would pose a significant risk of declining consumer demand after an initial trend subsides, potentially leaving you with a worthless business and ongoing contractual obligations.

Potential Mitigations

• Your business advisor can help you conduct independent market research to confirm long-term demand for the services in your area.
• Assess any franchise opportunity for its resilience to economic shifts and changing consumer tastes.
• A discussion with your financial advisor can help evaluate the long-term viability of the industry.

Explanation

This risk was not identified. FDD Item 2 shows that the franchisor's key executives have prior experience in the franchising sector with large brands like Choice Hotels and WoodSpring Hotels, as well as in the healthcare industry. Inexperienced management could pose a risk through weak support systems, poor strategic decisions, and an inadequate understanding of the franchisee-franchisor relationship.

Potential Mitigations

• Always have a business advisor help you vet the backgrounds of the franchisor's key management team for relevant industry and franchising experience.
• When speaking with existing franchisees, inquire about their direct experiences with the management team's competence and accessibility.
• Your attorney can review the FDD for any rapid turnover in key management positions, which could be a red flag.

Explanation

This risk was not identified. The FDD discloses the existence of a parent company, Haase Holdings, LLC, in Item 1. A failure to disclose a parent company can obscure the true ownership, control, and financial backing of the franchisor. If a franchisor is a thinly capitalized subsidiary, the parent's financial health becomes critical to assessing the overall risk of the investment.

Potential Mitigations

• It is prudent for your attorney to review Item 1 and Item 21 to ensure any parent companies are properly disclosed.
• Your accountant should determine if the franchisor's own financials are strong enough or if a parental guarantee is necessary and provided.
• A business advisor can assist in researching the corporate structure to identify any undisclosed controlling entities.

Explanation

This risk was not identified in the FDD. The document discloses the franchisor's history, including a name change, but does not indicate any undisclosed negative history associated with a predecessor entity. Hidden or downplayed issues from a predecessor, such as past litigation, bankruptcy, or high failure rates, could present a significant risk to a new franchisee by obscuring the true track record of the system.

Potential Mitigations

• Your attorney should always review Item 1, 3, and 4 carefully for any mention of predecessor companies.
• A business advisor can help you conduct independent research into any named predecessors for past issues or complaints.
• Speaking with long-tenured franchisees can provide valuable history about the system under any prior ownership.