Explanation

The franchisor, Just Between Friends Franchise System, Inc. (JBF), provides audited financial statements for the past three years. These statements show consistent profitability, positive and growing retained earnings, and a healthy balance sheet with current assets exceeding current liabilities. No significant indicators of financial instability such as a going concern note were found. The franchisor appears to be financially stable and capable of supporting the franchise system.

Potential Mitigations

• It is still advisable for your accountant to conduct a thorough review of the audited financial statements, including all notes, to confirm financial health.
• Discuss the franchisor's financial strategy and allocation of resources for franchisee support with your business advisor.
• Your attorney can help you understand any financial performance guarantees or support obligations mentioned in the Franchise Agreement.

Explanation

The data in Item 20 shows a relatively stable number of total outlets over the past three years, with a slight increase. The franchisor is not engaged in excessively rapid expansion that might strain its support systems. The growth appears managed and sustainable, suggesting that the support infrastructure is likely adequate for the current number of franchisees.

Potential Mitigations

• A discussion with your business advisor about the franchisor's growth plans can provide insight into their long-term strategy.
• It is beneficial to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• Your accountant can review the franchisor's allocation of resources to support functions in the financial statements.

Explanation

JBF has been in business since 2003 and has a long history of franchising. The system has over 140 franchised units and provides audited financial statements and a multi-year history of franchisee turnover in Item 20. The business model appears well-established and is not a new or unproven concept.

Potential Mitigations

• It is still wise to conduct thorough due diligence by speaking with a broad range of current and former franchisees about their experiences.
• A business advisor can help you assess the franchisor's track record and standing within the consignment sale industry.
• Your accountant should review the multi-year financial data to confirm the long-term stability and profitability of the franchisor.

Explanation

The business of children's and maternity consignment sales is a well-established retail sector. While subject to economic cycles and competition, it is not based on a fleeting trend. The business addresses a consistent consumer need for affordable children's items. The risk of this being a fad business appears low.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the second-hand goods market in your specific territory.
• Understanding the competitive landscape, including online marketplaces and local resale shops, is crucial for developing your business plan.
• Consult with your financial advisor to model the business's resilience to various economic conditions.

Explanation

The leadership team disclosed in Item 2 appears to have extensive and relevant experience. The CEO and COO are both former multi-unit JBF franchisees, indicating deep operational knowledge of the system from a franchisee's perspective. Other executives have backgrounds in finance, technology, and franchise development. This level of direct, relevant experience within the specific brand and industry is a positive factor.

Potential Mitigations

• It remains a good practice to discuss the management team's accessibility and supportiveness with current franchisees.
• A business advisor can help you research the public track records and reputations of the key executives.
• During your interactions, assess the professionalism and strategic vision of the leadership team.

Explanation

This risk was not identified in the FDD Package. The franchisor is not disclosed as being owned by a private equity firm. Ownership appears to be held by an individual with extensive experience as a franchisee within the system. This can be a positive, as decisions may be more focused on long-term brand health rather than short-term investor returns.

Potential Mitigations

• It is still prudent to ask the franchisor about any long-term plans for selling the company or bringing in outside investors.
• Your attorney can help you verify the ownership structure of the franchisor entity.
• Discussing the company's long-term vision with your business advisor can provide additional context.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any parent company, and the franchisor, Just Between Friends Franchise System, Inc., appears to be the primary operating entity. The provided financial statements in Item 21 are for the franchisor itself, offering direct insight into its financial health.

Potential Mitigations

• Your attorney can confirm the corporate structure and the absence of any undisclosed parent entities that might influence the franchise.
• Ensuring the provided financials are for the entity you are contracting with is a key verification step your accountant should perform.
• A business advisor can help investigate if there are any affiliated companies that could present conflicts of interest.

Explanation

This risk was not identified in the FDD Package. Item 1 states that JBF has no predecessors. The company was formed in 2003 and has operated continuously under the same brand. Therefore, there is no hidden history from a predecessor entity that could conceal past failures, litigation, or other systemic problems.

Potential Mitigations

• Your attorney can independently verify the corporate history to confirm the absence of any predecessor entities.
• Discussions with long-tenured franchisees can provide historical context about the brand's evolution.
• A business advisor can help you research the company's historical reputation through public records and news archives.

Explanation

Item 3 discloses one lawsuit initiated by JBF against a former franchisee regarding the transfer of social media pages, which was resolved in JBF's favor. There is no disclosed pattern of litigation initiated by franchisees against JBF alleging fraud, misrepresentation, or breach of contract. The absence of such franchisee-initiated lawsuits is a positive indicator, suggesting a lower risk of systemic issues in sales or operations.

Potential Mitigations

• Your attorney should still review the details of the disclosed litigation to understand how the franchisor handles disputes.
• It is wise to ask current franchisees about their relationship with the franchisor and how disagreements are typically resolved.
• A business advisor can help you research public records for any undisclosed litigation, although this is unlikely for material cases.