Explanation

The franchise system shows modest growth in the number of outlets over the last three years. While not alarmingly rapid, this growth is occurring while the franchisor has a negative net worth, as shown in Item 21. Even slow growth could strain the resources of a financially weak company, potentially affecting its ability to provide adequate support to both new and existing franchisees. This interconnectedness of growth and financial health presents a risk.

Potential Mitigations

• Your accountant should review the franchisor's financials to assess if they have the resources to support current growth.
• Speaking with a mix of new and established franchisees about the quality and timeliness of franchisor support is a crucial due diligence step.
• A business advisor can help you evaluate the franchisor's capacity to scale its support infrastructure effectively.

Explanation

This risk was not identified in the FDD package. Image One has been franchising since 2014 and its management has experience dating back to 2001. An unproven system can be risky because its business model, brand recognition, and support infrastructure are not yet established, which may lead to higher failure rates for initial franchisees. This does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, it is beneficial to have a business advisor help you research the franchisor’s history and the track record of its management team.
• Speaking with the earliest franchisees in a system can provide valuable insight into its development and stability.
• An accountant can help assess whether a new franchisor has sufficient capital to support its initial growth phase.

Explanation

This risk was not identified. Image One operates in the commercial janitorial services industry, which is an established and ongoing business need rather than a fleeting trend. A fad-based business carries the risk that consumer interest may decline rapidly, potentially leaving you with a worthless business and continuing contractual obligations. That risk does not appear to be present here.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any industry you consider entering.
• It is wise to assess a business concept’s resilience to economic shifts and its potential for repeat customers.
• Your financial advisor can help model the financial viability of a business beyond its initial trendiness.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives have extensive experience in the janitorial and franchising industries, with some having been involved since 2001. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support. Image One's management appears to have substantial relevant experience.

Potential Mitigations

• A thorough review of the management team's biographies in Item 2 with a business advisor is a key part of due diligence.
• It is always prudent to ask existing franchisees about their direct experiences with the leadership team's competence and support.
• Verifying the franchising experience of management, not just industry experience, is important for any potential investment.

Explanation

This risk was not identified. The FDD does not indicate that Image One is owned by a private equity firm. When a PE firm owns a franchisor, there can be a risk that short-term financial goals are prioritized over the long-term health of the franchise system and its franchisees. This does not appear to be a factor in this FDD.

Potential Mitigations

• If a franchisor is owned by a private equity firm, engaging a business advisor to research the firm's history with other franchise brands is recommended.
• Your attorney should analyze the transfer rights in the franchise agreement to understand what happens if the system is sold.
• Asking existing franchisees about any changes in culture or support post-acquisition can provide valuable context.

Explanation

This risk was not identified. Item 1 of the FDD clearly states that the franchisor does not have a parent company. Failure to disclose a parent company can be a risk because it may hide the true financial stability or control structure of the franchise system. Image One appears to be a standalone entity.

Potential Mitigations

• It is important to have your attorney confirm the corporate structure described in Item 1.
• If a parent company exists and guarantees the franchisor's obligations, your accountant should review the parent's financial statements.
• Understanding the full ownership structure helps assess where ultimate control and financial responsibility lie.

Explanation

This risk was not identified. Item 1 of the FDD states that Image One does not have a predecessor. A franchisor with a predecessor could inherit historical problems, such as litigation or high franchisee turnover, which may not be immediately apparent. This does not appear to be a concern with this FDD.

Potential Mitigations

• When a predecessor is disclosed, a business advisor can help you research its history and reputation.
• Your attorney should carefully review Items 1, 3, and 4 for any negative history associated with a predecessor.
• Speaking with long-term franchisees who operated under a predecessor can provide critical insights.

Explanation

This risk was not identified. Item 3 discloses one lawsuit initiated by the franchisor against a former franchisee, which is not a pattern of franchisee-initiated litigation alleging fraud or misrepresentation. A pattern of such lawsuits can be a major red flag, suggesting systemic problems in the franchise sales process or the business model itself. That pattern is not present here.

Potential Mitigations

• Having your attorney carefully review all litigation history in Item 3 is a critical due diligence step.
• For any disclosed litigation, a legal professional can help you understand the nature of the allegations and their outcomes.
• A high volume of lawsuits, whether initiated by or against the franchisor, should be discussed with your business advisor and attorney.