Explanation

This specific risk was not identified. The audited financial statements for Interstate Battery Franchising & Development, Inc. (IBFAD) in Exhibit G, prepared by KPMG, show a financially healthy company. It has consistently generated substantial net income and maintains a strong positive net worth. There are no indicators of financial instability, such as a going concern note, that would suggest an inability to support franchisees.

Potential Mitigations

• Even with positive financials, having an accountant review the statements for trends in revenue, debt, and cash flow is a prudent step.
• A business advisor can help you understand how the franchisor's financial health relates to its ability to invest in technology and support.
• Your attorney should confirm if any financial performance bonds are required by the state, even for healthy franchisors.

Explanation

This risk was not identified in the FDD. The data in Item 20 indicates that the franchise system is experiencing a net decline in units, not rapid growth. Therefore, the risks associated with a franchisor overstretching its support systems by expanding too quickly do not appear to be a current concern for this brand.

Potential Mitigations

• Understanding a franchisor's growth plans is still important, so you can discuss their future strategy with a business advisor.
• Your attorney can review the agreement for any clauses related to future development that could impact support levels.
• An accountant can help you assess if the franchisor has the financial capacity for any future growth they may be planning.

Explanation

This risk was not identified. IBFAD has been offering franchises since 2000, and its parent company, Interstate Batteries, has been in business for over 65 years. Item 20 data shows a large, established system. The business model is mature and well-established, not new or unproven.

Potential Mitigations

• When evaluating any franchise, it is beneficial for your business advisor to assess the brand's history and market position.
• An attorney can still review the franchisor's history in Item 1 to ensure there are no hidden predecessor issues.
• Contacting long-term franchisees can provide insight into the system's evolution and stability.

Explanation

This risk is not present. The business of selling batteries for automotive, commercial, and consumer applications is a long-standing, essential market. The franchise is not based on a new or fleeting trend, suggesting a stable, long-term demand for its core products and services.

Potential Mitigations

• With any investment, a business advisor should help you conduct independent market research to confirm long-term consumer demand for the products.
• Your accountant can assist in evaluating the business model's resilience against economic shifts and technological changes.
• It is always wise to ask your attorney to review any restrictions that could limit your ability to adapt to future market changes.

Explanation

This risk was not found in the FDD. Item 2 discloses a management team with extensive and long-term experience within the Interstate Batteries system or in relevant senior roles in other companies. Key personnel appear to have significant backgrounds in the industry and in franchise operations, indicating a stable and knowledgeable leadership team.

Potential Mitigations

• Even with an experienced team, it's beneficial to discuss their backgrounds and strategic vision with a business advisor.
• Contacting current franchisees can provide valuable feedback on the quality and effectiveness of management's support.
• Your attorney can still review the employment history in Item 2 for any potential red flags or recent turnover in key positions.

Explanation

This risk was not identified. Item 1 of the FDD describes a multi-layered corporate ownership structure under Interstate Battery System International, Inc. but does not indicate that the ultimate parent is a private equity firm. The risks associated with short-term, investor-focused decision-making typical of PE ownership do not appear to be present here.

Potential Mitigations

• It's good practice for your attorney to verify the franchisor's corporate structure and ultimate ownership.
• A business advisor can help you research the parent company's history and its typical approach to managing subsidiary brands.
• Even without PE ownership, understanding the franchisor's long-term strategic goals is a key part of due diligence.

Explanation

This risk does not appear to be present. Item 1 clearly discloses the parent companies, RAD and IBSI. The provided financials for the franchisor, IBFAD, are audited and show it is a well-capitalized entity in its own right, which typically negates the requirement to provide parent company financials. The ownership structure seems adequately disclosed.

Potential Mitigations

• Your attorney should still confirm that the disclosure of affiliates and their roles in the system is complete and clear.
• An accountant can analyze the inter-company transactions disclosed in the financial statement notes to understand their impact.
• Asking the franchisor to explain the roles of each affiliated entity can provide additional clarity.

Explanation

This risk was not identified in the FDD. Item 1 discloses a predecessor, JWC/Battery Patrol, from an acquisition in 1999. However, Item 3 and Item 4 show no litigation or bankruptcy history related to this predecessor. Given the age of the acquisition and the lack of associated negative disclosures, historical issues from the predecessor do not appear to be a current risk.

Potential Mitigations

• It is always a good practice for your attorney to carefully review any predecessor history disclosed in Item 1.
• Contacting long-term franchisees who may have operated under the predecessor can provide historical context.
• A business advisor can help you assess how the franchisor has integrated and improved upon any acquired systems.