Explanation

This risk was not identified in the FDD package. The data in Item 20 shows the system has been shrinking over the last three years, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support to new and existing franchisees. While slow or negative growth presents its own risks, the specific challenges associated with outpacing support infrastructure are not present here.

Potential Mitigations

• Your business advisor can help you evaluate whether the franchisor's current size and growth rate align with your investment goals.
• In discussions with current franchisees, you should ask about the quality and timeliness of the support they receive from the franchisor.
• An accountant can analyze the franchisor's financial statements to determine if they have sufficient resources to support their existing franchisees.

Explanation

This risk was not identified. Huntington began franchising in 1985 and has a long operating history, as disclosed in Item 1. An unproven system carries higher risks, including the possibilities of an untested business model, undeveloped operational standards, and minimal brand recognition. Huntington is a mature franchise system, so this specific risk does not apply.

Potential Mitigations

• A business advisor can help you assess how a mature system's brand recognition and established procedures might benefit your new business.
• When speaking with franchisees, ask about the benefits and drawbacks of operating within a long-established system.
• Your attorney should review the franchise agreement for terms that are common in mature systems, such as upgrade requirements.

Explanation

This risk was not identified. The business model, focused on tutoring and test preparation services for school-aged children, is a well-established and enduring industry. A fad business is tied to a temporary trend, posing a risk of declining demand after the initial excitement fades. Huntington's long history since 1977 demonstrates sustained market demand for its services, indicating it is not a fad.

Potential Mitigations

• Consult with your business advisor to research the long-term outlook for the supplemental education industry in your specific market.
• Review Item 19 to understand the primary revenue streams and discuss their stability with current franchisees.
• Your accountant can help you model financial scenarios based on potential shifts in demand for different educational services.

Explanation

This risk was not identified in the FDD. Item 2 shows that the franchisor's management team, including its founders who have been involved since 1977, possesses extensive and long-term experience in the education and franchising industries. Inexperienced leadership can lead to strategic errors and inadequate support. However, the executive team at Huntington appears to be well-seasoned, mitigating this particular risk.

Potential Mitigations

• Your business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• During discussions with current franchisees, inquire about their perception of the management team's competence and vision for the brand.
• When meeting the franchisor, prepare questions about their strategic plans and how their experience informs their decisions.

Explanation

This risk was not identified. Item 1 indicates the franchisor is owned by Rare Holdings, Inc. and does not suggest private equity involvement. The presence of the founding family in key leadership roles further suggests it is not PE-owned. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of franchisees, but that specific risk does not appear to be present here.

Potential Mitigations

• Your attorney can help you verify the ownership structure detailed in Item 1 through public records.
• Ask the franchisor about their long-term goals for the company to gauge their commitment to the brand and its franchisees.
• Consult with your business advisor to understand the typical differences between founder-led and PE-owned franchise systems.

Explanation

This risk was not identified in the FDD. Item 1 clearly discloses the parent company, Rare Holdings, Inc., and other affiliates. It also clarifies that these entities do not offer franchises or provide services to franchisees. The FDD includes the required audited financial statements for the franchisor entity itself. Therefore, the risk of a hidden parent company with un-disclosed financial problems is not present.

Potential Mitigations

• Have your attorney review Item 1 and Item 21 to confirm that all required disclosures about parent companies and affiliates appear to be present and compliant.
• An accountant can help you understand the relationship between the franchisor and its affiliates as described in the financial statements.
• Always ensure the entity signing your franchise agreement is the same entity whose financial information you have reviewed.

Explanation

This risk was not identified. Item 1 discloses a predecessor that operated from 1977 to 1981, but no negative history related to it is disclosed in Items 3 or 4. Predecessor history is important because it can reveal inherited problems or a pattern of failure that may not be immediately obvious when looking only at the current franchisor. In this case, the predecessor history is very dated and does not appear to pose a current risk.

Potential Mitigations

• Your attorney should confirm that the disclosures regarding predecessors in Items 1, 3, and 4 are complete.
• When speaking with long-tenured franchisees, you could inquire about the system's history and any transitions in ownership.
• A business advisor can help you research public records if you have concerns about the history of the brand.

Explanation

This risk was not identified in the FDD package. Item 3, which requires the disclosure of certain types of current and past litigation, states that no litigation is required to be disclosed. A pattern of lawsuits against a franchisor, particularly from franchisees alleging fraud or misrepresentation, can be a major red flag about the health and integrity of the system. The absence of such disclosures is a positive indicator.

Potential Mitigations

• Your attorney should verify the statement in Item 3 and can perform a public records search for litigation as part of due diligence.
• When speaking with current and former franchisees, it is still prudent to ask about any disputes they may be aware of within the system.
• Always review the dispute resolution clauses in the franchise agreement with your attorney to understand the process should a conflict arise.