Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows a system that has been shrinking slightly in recent years, not growing at a rate that would strain support systems. Rapid growth can be a concern when a franchisor's support infrastructure cannot keep pace with the number of new units being opened, potentially leading to inadequate training, site selection assistance, and ongoing operational support for all franchisees.

Potential Mitigations

• Your business advisor can help you assess whether the franchisor's support staff and infrastructure, as described in Item 11, are adequate for the current system size.
• During discussions with existing franchisees, inquire about their satisfaction with the current level and quality of franchisor support.
• An accountant can review the franchisor's financial statements to determine if they are investing adequately in support systems for the long term.

Explanation

This risk was not identified in the FDD Package. The shared and virtual office space industry is a well-established sector of the commercial real estate market. The predecessor companies have been operating since the 1990s, indicating a business model with long-term demand rather than one based on a short-lived trend. A fad business carries the risk that consumer interest could decline, jeopardizing your investment even if you are locked into a long-term franchise agreement.

Potential Mitigations

• A business advisor can help you independently research the long-term projections and competitive landscape for the shared office space industry.
• It is wise to assess the business model's adaptability to economic shifts and changing work habits with your financial advisor.
• When speaking with franchisees, you should ask about the stability of their client base and demand over time.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the management team is comprised of executives from United Franchise Group (UFG). These individuals, including the CEO, have extensive and long-term experience managing numerous large and diverse franchise systems. Therefore, the leadership does not lack experience in franchising, which can otherwise be a significant risk if a franchisor does not understand how to support a franchise network effectively.

Potential Mitigations

• Even with an experienced team, it is valuable to speak with franchisees of other UFG brands to understand the corporate culture and support quality.
• Your attorney can help you research the public record and reputation of the key executives listed in Item 2.
• A business advisor can help you evaluate how the management team's experience with other brands translates to this specific business concept.

Explanation

This risk was not identified in the FDD Package. Item 1 describes the franchisor's affiliation with United Franchise Group, which is portrayed as a collection of founder-led, distinct franchise brands, not a company owned by a private equity firm. Private equity ownership can sometimes introduce risks related to a focus on short-term profits over the long-term health of the system or a quick resale of the brand, which may lead to instability or changes in management philosophy.

Potential Mitigations

• Your attorney can help verify the ownership structure of the franchisor and its parent companies through public records.
• It is prudent to ask the franchisor directly about any potential plans for a sale of the company or a change in ownership.
• A business advisor can help you research the history and ownership structure of the affiliated United Franchise Group brands.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses the franchisor's affiliation with United Franchise Group and its various brands. The California state addendum in Exhibit L notes that a financial guarantee is provided by an affiliate, FP Franchising, Inc. This indicates that while the franchisor's own financials may be weak, the structure and the guarantor are disclosed, providing a degree of transparency about the financial backing of the system.

Potential Mitigations

• Your attorney should confirm that the guarantee agreement mentioned in the state addenda is included and legally sound.
• An accountant should review the financial statements of the guarantor entity, if provided, to assess its ability to support the franchisor.
• Understanding the exact nature of the relationship and obligations between the franchisor and its parent/guarantor is a key topic for discussion with your attorney.