Explanation

This risk was not identified. The FDD reports no franchisee terminations, non-renewals, or cessations of business for any reason in the last three years. Generally, high franchisee turnover can be a significant warning sign, often indicating systemic problems such as a lack of profitability or poor franchisor support. This system appears to be in a growth phase with no reported turnover.

Potential Mitigations

• When evaluating any franchise, it is critical to have your accountant analyze the franchisee turnover rates in Item 20 for the past three years.
• Your attorney can help you frame questions to ask former franchisees about why they left the system.
• A business advisor can help compare the franchise's turnover rates against any available industry benchmarks.

Explanation

This risk was not identified. The management team, particularly the founder, has direct operational experience with the business concept through affiliate-owned locations since 2016. Furthermore, the franchisor has hired a Franchise Business Coach with several years of relevant franchise operational experience from other wellness franchise systems. This combination of direct industry and franchising experience can be a positive factor for a newer system.

Potential Mitigations

• When reviewing any FDD, have a business advisor help you assess the depth and relevance of the management team's experience listed in Item 2.
• It is wise to ask current franchisees about their direct experiences with the management team's competence and support.
• An attorney can help you understand the backgrounds of the individuals who will be supporting your business.

Explanation

The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the system, potentially affecting franchisee support and costs. This does not appear to be a factor in this franchise system based on the provided documents.

Potential Mitigations

• A business advisor can help research the ownership structure of any franchisor to identify potential private equity involvement.
• If a franchisor is PE-owned, asking your attorney to review the assignment clause in the Franchise Agreement is critical.
• When PE firms are involved, it's beneficial to ask your business advisor to investigate their track record with other franchise brands.

Explanation

The franchisor explicitly states in Item 1 that it has no parent company. The provided financial statements are for the franchisor entity itself. Therefore, the risk of obscured financial health due to a non-disclosed or non-guaranteeing parent company does not appear to be present in this FDD. All risks seem to be contained within the disclosed franchisor entity.

Potential Mitigations

• Your accountant should always verify whether a franchisor has a parent company and if that parent guarantees the franchisor's obligations.
• If a parent entity exists, your attorney should confirm whether the parent's financial statements are required to be disclosed.
• A business advisor can help investigate the complete corporate structure to ensure full transparency.

Explanation

The FDD indicates in Item 1 that the franchisor has no predecessors. This means the entity KCA is the original franchisor for this system. Consequently, there are no historical issues from prior entities, such as hidden litigation or bankruptcy, that could be passed on to the current franchise system. Your evaluation should focus on the history of the current franchisor.

Potential Mitigations

• Your attorney should carefully review Item 1 of any FDD for information about predecessors.
• If a predecessor is listed, a business advisor can help you conduct independent research into that entity's history.
• Asking long-term franchisees about their experience under any prior ownership is a crucial due diligence step.

Explanation

This risk is not identified. Item 3 discloses only one past lawsuit, which was a trademark enforcement action initiated by an affiliate against an unaffiliated third party, not a dispute with a franchisee. The FDD does not show a pattern of litigation involving claims of fraud, misrepresentation, or other systemic issues brought by franchisees against the franchisor, which is a positive indicator.

Potential Mitigations

• Your attorney should always carefully analyze the nature, frequency, and outcomes of any litigation disclosed in Item 3.
• A pattern of lawsuits from franchisees alleging fraud is a major red flag that should be discussed with your legal counsel.
• Have your attorney investigate the context of any franchisor-initiated lawsuits against franchisees, as this can indicate an aggressive relationship.