Explanation

This risk was not identified. The franchisor is not undergoing rapid expansion; in fact, Item 20 data indicates a net decrease in the number of outlets over the last three years. Uncontrolled growth can strain a franchisor's ability to provide adequate support, so its absence can be a positive sign, but the reasons for system shrinkage should be understood.

Potential Mitigations

• A business advisor can help assess whether a franchisor's growth rate aligns with its support capabilities.
• When evaluating a franchise, discussing the franchisor's growth plans and support infrastructure with your attorney is important.
• An accountant's review of financial statements can reveal if a company has the resources to support its expansion.

Explanation

This risk was not identified. Item 1 indicates the HouseMaster brand has been franchising since 1979, making it a very established system, not a new or unproven one. Investing in a new system carries higher risks due to the lack of a track record, unrefined support systems, and lower brand recognition.

Potential Mitigations

• A business advisor can help you investigate the history and track record of any franchise system you consider.
• It is prudent to have an attorney review the franchisor's business experience as disclosed in Item 1.
• An accountant can analyze the financial statements in Item 21 to gauge the stability of a new system.

Explanation

This risk is not present. The business model, providing home inspection services, is a well-established and essential part of the real estate transaction process, not a temporary fad. A fad business lacks long-term consumer demand, which can pose a significant risk to an investment with a long-term contractual commitment.

Potential Mitigations

• A business advisor can help you research the long-term viability and market trends of any industry before investing.
• Evaluating the franchisor's plans for innovation and adaptation to market changes is a crucial step for any franchise.
• Your financial advisor can assist in assessing whether a business model is sustainable beyond current trends.

Explanation

This risk was not identified. The management team detailed in Item 2 possesses extensive experience in franchising, with many executives having long tenures within the HouseMaster system or its parent company, Neighborly. Inexperienced management can be a significant risk, as it may lead to poor support, weak systems, and strategic errors.

Potential Mitigations

• A business advisor can help you research the backgrounds and specific franchise experience of the key management team.
• Consulting with your attorney to review Item 2 disclosures is a fundamental due diligence step.
• Speaking with existing franchisees can provide valuable insight into the quality and effectiveness of the management team.

Explanation

This risk was not found. The FDD provides extensive disclosure in Item 1 regarding its complex parent company structure, including the ultimate private equity owner. It also includes the required financial statements for the parent guarantor. A lack of transparency about parent companies can hide financial instability or other risks.

Potential Mitigations

• An attorney can help verify the full corporate structure and ensure all relevant parent companies are disclosed.
• If a parent company provides a guarantee, your accountant should confirm their financial statements are included and audited.
• Investigating the business and litigation history of parent companies with a business advisor is a wise due diligence step.

Explanation

This risk was not identified. Item 1 discloses the franchisor's predecessors, and a review of Items 3 and 4 does not reveal a history of significant litigation or bankruptcy involving them. Concealing or having a troubled history with predecessor companies can be a red flag, as it may indicate unresolved systemic issues that have been passed on to the current franchisor.

Potential Mitigations

• A franchise attorney should always be engaged to review the disclosed history of any predecessor entities in Items 1, 3, and 4.
• Your business advisor can assist in conducting independent research into the reputation and history of any predecessor companies.
• Asking long-tenured franchisees about their experience under previous ownership can provide valuable context.

Explanation

The franchisor does not disclose a pattern of litigation involving franchisee claims of fraud, misrepresentation, or breach of contract in Item 3. A history of such lawsuits can be a major red flag indicating systemic problems. The disclosed litigation involves other brands under the same parent company, not HouseMaster directly.

Potential Mitigations

• Your attorney should always carefully review the details of any litigation disclosed in Item 3.
• It is wise to have your attorney conduct an independent search for litigation that may not have been required to be disclosed.
• A business advisor can help you contact franchisees to inquire about any history of disputes, even those that did not result in litigation.