Explanation

This risk was not identified. The consolidated financial statements for Alliance Franchise Brands LLC (AFB), audited by a major accounting firm, show consistent profitability and a positive net worth. The auditor's report does not contain a 'going concern' qualification, suggesting the company has the financial resources to support its obligations and the franchise system. This indicates a lower risk of franchisor failure due to financial instability.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financials, including footnotes and trends over the past three years.
• Understanding the franchisor's revenue sources, such as the balance between initial fees and ongoing royalties, is a key discussion to have with your accountant.
• Engaging a business advisor can help you assess the overall financial health and long-term viability of the franchisor.

Explanation

This risk was not identified. The data in Item 20 indicates that the Image360 system is experiencing steady, manageable growth rather than expanding at an explosive rate. This suggests AFB is less likely to outpace its ability to provide necessary franchisee support services, such as training and site selection assistance, due to overly rapid expansion. This controlled growth is a positive indicator for system stability.

Potential Mitigations

• A business advisor can help you analyze growth trends in Item 20 relative to the franchisor's support capabilities outlined in Item 11.
• Posing questions to the franchisor about how they scale their support staff and infrastructure to match unit growth is a prudent step.
• Speaking with franchisees who joined at different times can provide your business advisor with insight into the consistency of support.

Explanation

This risk was not identified. AFB and its various brands, including Image360, are well-established, with a corporate history dating back to 2000. The FDD provides extensive data on a large number of existing franchised units and multi-year audited financial statements. The system is mature and has a long operational track record, which reduces the risks typically associated with new or unproven franchise concepts.

Potential Mitigations

• Even with established systems, having your attorney review the franchisor's history in Item 1 is important.
• Consulting a business advisor to understand the brand's competitive position within its mature market can provide valuable context.
• An accountant's review of the historical financial data in Item 21 can confirm the stability of the established system.

Explanation

This risk was not identified. The franchise operates in the business-to-business graphics, signage, and display industry. This is a well-established, core business service sector with sustained demand, not a business model based on a fleeting consumer trend or novelty. The long history of the franchisor and its brands further suggests a stable market presence rather than a fad.

Potential Mitigations

• Your business advisor should still help you conduct independent market research to assess long-term demand in your specific local area.
• Asking the franchisor about their research and development efforts, as outlined in Item 11, can provide insight into their plans for future relevancy.
• A financial advisor can help you evaluate the business model's resilience to various economic cycles.

Explanation

This risk was not identified. The executive team detailed in Item 2 possesses extensive and long-term experience in both the franchising industry and the specific graphics and printing sector. Many executives have been with AFB or its predecessor companies for over a decade. This depth of relevant experience suggests a strong capacity to manage the franchise system and support franchisees effectively.

Potential Mitigations

• A business advisor can help you cross-reference the management team's disclosed experience with their industry reputation.
• It is still advisable to ask current franchisees about their direct experiences with the management team's responsiveness and support.
• Your attorney can confirm that the experience listed in Item 2 aligns with the support obligations outlined in Item 11.

Explanation

This risk was not identified. While AFB is part of a larger holding company structure, the FDD does not indicate that the ultimate parent is a private equity firm. The ownership structure appears to be a corporate one focused on the long-term operation of franchise brands, rather than a fund with a defined investment horizon, which mitigates risks associated with short-term, investor-focused decision-making.

Potential Mitigations

• It is still prudent to have your attorney help you understand the complete ownership structure as disclosed in Item 1.
• A discussion with your business advisor about the franchisor's long-term strategic goals can provide further insight into their operational philosophy.
• Speaking with long-term franchisees about any changes in ownership and their impact on the system is valuable due diligence.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Alliance Franchise Holdings LLC, and other affiliates. The franchisor, AFB, provides its own consolidated audited financial statements in Item 21. There is no indication that the parent company's financials are required but have been withheld, providing a transparent view of the franchising entity's financial condition.

Potential Mitigations

• Having your attorney review the corporate structure in Item 1 and the basis of the financial statements in Item 21 is a good practice.
• An accountant can confirm that the provided financials are for the correct legal entity offering the franchise.
• A business advisor can help you understand the roles of the various affiliated entities mentioned in the FDD.

Explanation

This risk is present but appears low. Item 1 discloses that the current franchisor, AFB, was formed after a merger with a predecessor, Sign & Graphics Operations LLC (SGO). Item 3 discloses a lawsuit brought by a franchisee against this predecessor, SGO, which was subsequently settled. While the matter is concluded, acquiring a company with a history of franchisee litigation carries a minor degree of inherited risk.

Potential Mitigations

• Your attorney should carefully review the details of the predecessor's history and the litigation disclosed in Items 1 and 3.
• Asking current franchisees who were part of the system during the transition from the predecessor can provide valuable insight.
• A business advisor can help you assess how the franchisor has integrated the predecessor's operations and addressed any past issues.

Explanation

This risk was not identified. Item 3 discloses two concluded legal actions for a large, multi-brand system with hundreds of franchisees. One was a settled suit brought by a franchisee against a predecessor, and the other was a settled collection action brought by the franchisor. This low volume of litigation does not indicate a pattern of disputes or suggest systemic problems within the franchise relationship.

Potential Mitigations

• It is still wise for your attorney to review the nature and outcome of any disclosed litigation in Item 3.
• A discussion with your business advisor can help compare the level of litigation to what might be expected for a system of this size.
• Inquiring with current franchisees about the franchisor's general approach to dispute resolution can provide additional context.