Explanation

This specific risk was not identified. HT USA has been franchising since 2008 and has a significant number of operating units. An unproven system is a risk because it may lack refined operational procedures, established brand recognition, and a history of franchisee success, which increases the uncertainty and potential for business failure. It is always wise to investigate the franchisor's history and the experience of their earliest franchisees.

Potential Mitigations

• A business advisor can help you research the franchisor's history and the track record of its management team.
• It is beneficial to contact the longest-operating franchisees to inquire about the evolution of the system and the support provided over time.
• An accountant can help you assess the financial stability of any franchise system, which is particularly important for newer concepts.

Explanation

This risk was not identified. The pet care industry, including services like dog daycare and boarding, generally demonstrates sustained consumer demand. However, with any business, there's a risk that a concept is a fad with limited long-term viability. If consumer interest wanes, your contractual obligations to the franchisor, such as paying royalties, would likely continue even if your revenue declines, posing a significant financial risk.

Potential Mitigations

• Engaging a business advisor to research the long-term market trends for the specific services offered by the franchise is a prudent step.
• Evaluate the franchisor's stated plans for innovation and adaptation to changing market conditions with your business advisor.
• Your financial advisor can help you model the financial impact of potential shifts in consumer demand on your business.

Explanation

This specific risk was not identified. The executives detailed in Item 2 appear to have prior experience in the franchising industry, including with other pet-related and service-based brands like Wag N' Wash and WellBiz Brands. Inexperienced management can be a risk because it may lead to underdeveloped support systems, a lack of understanding of the franchisee-franchisor relationship, and poor strategic decisions that could negatively impact your investment.

Potential Mitigations

• It is always wise to have a business advisor help you research the backgrounds and specific franchise experience of the key management team.
• Speaking with current franchisees about the quality of management's support and strategic direction provides valuable insight.
• Your attorney can help you understand the contractual obligations of the franchisor, regardless of their experience level.

Explanation

This risk was not identified in the FDD package, as Item 1 does not indicate ownership by a private equity firm. When a franchise is owned by a PE firm, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of franchisees. This could manifest as increased fees, reduced support, or a quick sale of the company, creating uncertainty for your business.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise and the track record of any private equity owner.
• Consulting an attorney to understand the franchisor's rights to sell or assign the franchise agreement is important.
• Discussing any changes in philosophy or support since a PE acquisition with existing franchisees can be very revealing.

Explanation

This risk was not identified, as Item 1 does not disclose any parent companies. If a franchisor is a subsidiary of a parent company, it is important that the parent's financial information is also disclosed and reviewed, especially if the parent guarantees the franchisor's obligations or is a critical supplier. Without this information, you may not have a complete picture of the financial stability and resources backing your franchise system.

Potential Mitigations

• Your attorney should verify the franchisor's corporate structure and determine if any parent company disclosures are required but missing.
• An accountant should review the financial statements of any parent company that provides a guarantee for the franchisor.
• A business advisor can help you understand the relationship and dependencies between a franchisor and its parent entity.

Explanation

This risk was not identified. Item 1 indicates the current company, Hounds Town USA, LLC, was formed from a merger with its own subsidiary, originally Hounds Town, Inc. No other predecessors are listed. When a franchisor has predecessors, it is important to scrutinize their history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate historical problems that may still affect the system you are joining.

Potential Mitigations

• An attorney can help you review Item 1 for any disclosed predecessors and assess their historical performance.
• It is beneficial to research any predecessors independently for news articles or other public information with the help of a business advisor.
• Asking long-term franchisees about their experiences under any previous ownership can provide valuable context.

Explanation

This risk was not identified in the FDD, as Item 3 states, "No litigation is required to be disclosed in this Item." A pattern of litigation, particularly lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. Similarly, a high number of lawsuits initiated by the franchisor against franchisees might suggest an overly aggressive or litigious culture.

Potential Mitigations

• It is prudent to have your attorney conduct an independent search for litigation involving the franchisor, as some cases may not meet the criteria for disclosure in Item 3.
• Discussing the franchisor's relationship with its franchisees, including any history of disputes, with current and former franchisees is recommended.
• A business advisor can help you assess whether any disclosed litigation indicates a negative trend or a poor franchisor-franchisee relationship.