Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows a net decrease in the number of franchised outlets over the last three years, which indicates system shrinkage rather than rapid growth. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is noteworthy, though the reasons for shrinkage present their own significant risks.

Potential Mitigations

• A business advisor can help you assess whether the franchisor's current size and resources are adequate to support its existing franchisees.
• Discuss the franchisor's future growth plans and how they intend to manage scaling support systems with your attorney.
• It is wise to have an accountant review the franchisor's financials to ensure they have the resources to support any future growth initiatives.

Explanation

This risk was not identified in the FDD Package. Honest Abe Roofing Franchise, Inc. indicates it began franchising in 2017, giving it several years of operational history. An unproven system can present risks due to a lack of refined processes and brand recognition. While this system is not new, a prospective franchisee should consider the high turnover rate disclosed in Item 20 when evaluating the system's stability and track record.

Potential Mitigations

• Investigating the franchisor's history and the experience of its management team with a business advisor is a crucial step.
• Your attorney can help you understand the legal implications of investing in a franchise of any age.
• Consulting with an accountant to review the franchisor's financial track record provides insight into its stability over time.

Explanation

This risk was not identified in the FDD Package. The franchise offers roofing, gutter, and siding installation services. These are established home maintenance services with consistent consumer demand and are not dependent on a short-term trend or fad. A business based on a fad carries the risk of declining consumer interest, which could jeopardize the long-term viability of the investment.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for the services offered in your local area.
• It is prudent to have your accountant help you develop financial projections based on realistic, sustainable market conditions.
• Your attorney can review the franchise agreement to ensure you have flexibility if market demands change.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have significant and relevant experience. The Founder has been president of an affiliated roofing business since 2007, and the COO has prior experience with other large franchise systems. Inexperienced management can be a risk, as it may lead to inadequate support, poor strategic decisions, and underdeveloped operational systems for franchisees.

Potential Mitigations

• Even with experienced management, it's wise to speak with current franchisees about the quality and responsiveness of the support they actually receive.
• A business advisor can help you further vet the backgrounds of the key leadership team members.
• Your attorney can help confirm that the support obligations outlined in the Franchise Agreement are specific and enforceable.

Explanation

This risk was not identified in the FDD Package. Item 1 states the franchisor has no parent company and does not indicate ownership by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system, potentially affecting franchisee support and costs. Its absence here means this particular risk is not a factor.

Potential Mitigations

• Understanding the ownership structure of any franchisor is an important due diligence step that your attorney can assist with.
• A business advisor can help you research the reputation and track record of a franchisor's parent company, if one exists.
• It is a good practice to ask current franchisees about any changes in operations or support if there has been a recent change in ownership.

Explanation

This risk was not identified in the FDD Package. Item 1 states, "We have no parent or subsidiaries," meaning there is no parent company whose financial information might be relevant or required for disclosure. In cases where a franchisor is a subsidiary, the financial health of the parent can be critical, and its non-disclosure could hide potential risks.

Potential Mitigations

• Your attorney can help verify the corporate structure of a franchisor to confirm the accuracy of statements about parent companies.
• If a parent company does exist, your accountant should determine if its financial statements are necessary for a complete risk assessment.
• A business advisor can help you understand the potential influence a parent company may have on a franchise system.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any predecessor entities from which Honest Abe Roofing acquired its assets or that previously operated the franchise system. When a predecessor exists, it is important to review its history for issues like litigation, bankruptcy, or franchisee turnover, as these could indicate inherited problems for the current franchisor.

Potential Mitigations

• A thorough review of Item 1 with your attorney is crucial to identify any disclosed predecessors.
• If a predecessor is mentioned, a business advisor can help you research its history and reputation.
• Speaking with long-term franchisees can provide insight into their experiences under any previous ownership.