Explanation

This specific risk was not identified in the FDD package. Item 20 data for 2022-2024 shows no terminations, non-renewals, or other cessations of franchised outlets. While positive for a new system, it is important to remember that high turnover can signal franchisee dissatisfaction or lack of profitability. The system's youth means this could change, so ongoing monitoring through franchisee discussions is important.

Potential Mitigations

• Speaking with a range of current and former franchisees is the best way to understand their satisfaction levels and reasons for any departures.
• Your business advisor can help you calculate and benchmark the turnover rates presented in Item 20 against industry averages.
• It is wise to ask your attorney to help you formulate questions for franchisees about their relationship with the franchisor.

Explanation

This risk was not identified in the FDD. Item 20 data shows steady, but not excessively rapid, growth from one to six franchised outlets over three years. Generally, very fast expansion can strain a franchisor's ability to provide adequate training and support. While not currently an issue, you should evaluate HVSF’s capacity to support its planned future growth, which includes a projection of 18 new franchised outlets in the next fiscal year.

Potential Mitigations

• Your business advisor can help you question the franchisor about their infrastructure and staffing plans to support projected future growth.
• In discussions with current franchisees, ask about the quality and responsiveness of the support they are currently receiving.
• An accountant should review HVSF's financials to assess if they have the resources to properly support a larger system.

Explanation

This risk was not identified in the FDD package. The business model, providing swim lessons, serves a long-standing and consistent market need for water safety and instruction for children. This type of service is generally not considered a fad. However, success still depends on your ability to effectively market and deliver high-quality services in a competitive local market. Your long-term viability will depend on operational excellence rather than a transient trend.

Potential Mitigations

• Engaging a business advisor to research your local market is key to confirming sustained demand for these services.
• Understanding the local competitive landscape will help you create a robust business plan.
• Discuss the long-term vision and plans for service evolution with the franchisor.

Explanation

This risk was not identified in the FDD package. Item 1 indicates HVSF is a family-owned limited liability company and does not disclose any ownership by a private equity firm. Franchisees in systems owned by PE firms can sometimes face pressures related to short-term profit goals over the long-term health of the brand. This does not appear to be a concern here, as the principals are directly involved in operations.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor through public records.
• Asking the franchisor about their long-term vision for the company can provide insight into their operational philosophy.
• A business advisor can help you understand the different risks associated with various franchisor ownership structures.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the existence of an affiliate, Hudson Valley Swim Inc., and Item 21 provides the audited financial statements for the franchisor, HVSF. There is no indication of a parent company whose financials would be required for a complete risk assessment. The relationship between HVSF and its affiliate appears to be adequately disclosed.

Potential Mitigations

• Your accountant should review the provided financials and Item 1 to confirm the corporate structure is clear.
• An attorney can help you understand the legal relationship and obligations between a franchisor and its affiliates.
• Always question any ambiguity about the entities you are contracting with.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a predecessor entity, Set & Swim Aquatics, Inc., which was reincorporated as the affiliate HVSI. The FDD does not indicate any negative history such as litigation or bankruptcy associated with this predecessor. The lineage of the operational system appears transparent, flowing from the predecessor to the affiliate that now licenses the intellectual property to the franchisor.

Potential Mitigations

• Your attorney should review the disclosures in Items 1, 3, and 4 for any information related to predecessors.
• It is good practice to ask long-tenured employees or contacts about their experience with any predecessor entities.
• Independent online research on predecessor names can sometimes uncover history not present in the FDD; your business advisor can assist.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This indicates an absence of significant legal disputes with current or former franchisees involving claims like fraud or misrepresentation, or a high volume of franchisor-initiated lawsuits against franchisees. This is a positive indicator, though it is not a guarantee of future harmony within the system.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• Engaging a legal professional to conduct a public records search for litigation involving the franchisor or its principals is a prudent step.
• During due diligence calls, you can ask franchisees about the nature of disputes within the system.