Explanation

Item 20 data for the last three years (2022-2024) is disclosed. Analysis of this data shows a relatively low rate of franchisee terminations, non-renewals, and other cessations. For example, in 2024, there were two terminations out of a base of 129 franchised outlets. While these figures do not appear alarming, you should still investigate the circumstances behind any departures to understand potential systemic issues.

Potential Mitigations

• Speaking with former franchisees listed in Exhibit G is crucial to understand their reasons for leaving the system.
• Your accountant can help you calculate the precise turnover rates over the three-year period and compare them to any available industry benchmarks.
• Engage a business advisor to assess whether the rate of transfers, while not a direct indicator of failure, may signal underlying issues.

Explanation

The FDD does not indicate excessively rapid growth that would strain support systems. Item 20 shows slow and steady net growth in the number of franchised outlets over the past three years. This pace suggests the franchisor's support infrastructure is less likely to be overwhelmed by a sudden influx of new franchisees. However, this is a factor that should be continuously monitored.

Potential Mitigations

• You should still confirm with current franchisees whether the level of support provided by the franchisor feels adequate for the system's size.
• A discussion with your business advisor can help evaluate if the franchisor's growth plans are sustainable and well-supported.
• Your attorney can review the franchisor's obligations for support to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD Package. The franchisor, HOODZ, began franchising in 2009 and has a history of over a decade with more than 100 outlets, indicating it is an established system. An unproven system presents higher risks because its business model, brand recognition, and support structures are not yet time-tested, which could lead to a higher potential for failure.

Potential Mitigations

• When evaluating any franchise, it is wise to have your business advisor assess the franchisor’s track record and the maturity of its systems.
• An accountant should review the financials of any system, especially a new one, to ensure it is adequately capitalized.
• Legal counsel should be consulted to understand if there are additional protections you can negotiate when investing in a newer brand.

Explanation

This risk was not identified in the FDD Package. The commercial kitchen exhaust cleaning industry is established and driven by regulatory requirements (e.g., fire codes), suggesting sustained demand. A fad business, tied to a short-lived trend, presents the risk that consumer interest will disappear, potentially leaving you with a failing business but still bound by a long-term franchise agreement.

Potential Mitigations

• For any franchise opportunity, a business advisor should help you conduct independent market research to assess the long-term sustainability of consumer demand.
• It is prudent to evaluate a brand’s plans for innovation and adaptation to stay relevant in a changing market.
• Your accountant can help you analyze the financial resilience of a business model against economic shifts or changing trends.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses that the key officers and directors of HOODZ and its parent, BELFOR Franchise Group, have extensive experience in the franchising and restoration/cleaning industries, some with tenures dating back to 2007 or earlier. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher chance of system-wide problems.

Potential Mitigations

• When considering any franchise, it is important to have your business advisor help you vet the backgrounds of the entire management team.
• Speaking with current franchisees about the quality and responsiveness of management provides crucial real-world insight.
• Your attorney can help you understand the stability of the management team and any recent, significant turnover.

Explanation

This risk was not identified in the FDD Package. The FDD clearly discloses the parent companies and provides audited financial statements for the guarantor, BFG Holdco, Inc., as required. Failure to disclose a parent company or its financials when required can obscure the true financial health and backing of the franchisor, which is a major risk for a prospective franchisee.

Potential Mitigations

• An attorney should always verify the corporate structure disclosed in Item 1, especially if the direct franchisor entity is newly formed or thinly capitalized.
• It is crucial for your accountant to confirm that the provided financials (whether for the franchisor or a guarantor) are audited and meet all legal requirements.
• If a parent guarantee is offered, your attorney should review its terms to ensure it provides meaningful protection.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessors. A franchisor with a predecessor has acquired the assets of a previous company. It is important to know if a franchise system has a history under a different owner, as this could involve inherited issues, such as past litigation or franchisee failures, which might not be immediately apparent.

Potential Mitigations

• If a predecessor is listed, it is wise to have your attorney carefully review all disclosures related to them in Items 1, 3, and 4.
• Conducting independent research on the predecessor's business reputation can provide valuable context, a task for your business advisor.
• Asking long-term franchisees about their experiences under any previous ownership is a key due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 3 states, 'No litigation is required to be disclosed in this Item.' This indicates there have been no recent material legal actions involving the franchisor related to fraud, securities violations, or franchise relationship issues. A pattern of litigation, especially cases brought by franchisees alleging fraud, can be a major red flag indicating systemic problems within a franchise.

Potential Mitigations

• Even with no disclosed litigation, asking current and former franchisees about their experiences and any informal disputes is a prudent step to take with your business advisor.
• An attorney can perform a public records search to see if any non-material litigation exists that might still offer insight.
• Always consider the dispute resolution clauses in the franchise agreement with your attorney, as they dictate how future conflicts would be handled.