Explanation

The audited financial statements for JUST BETWEEN FRIENDS FRANCHISE SYSTEM, INC. (JBF) show consistent profitability and positive net worth for the fiscal years 2022, 2023, and 2024. For 2024, net income was $264,151 and total stockholder's equity was $896,885. These figures suggest financial stability and the capacity to support the franchise system. The risk of franchisor financial instability appears low at this time.

Potential Mitigations

• Your accountant should review the complete audited financial statements, including all footnotes and the auditor's opinion, to confirm this assessment.
• A business advisor can help you assess if the franchisor's financial health supports its plans for system growth and support.
• Ask your attorney to verify if any states have imposed financial assurance requirements like bonds or escrow despite the positive financials.

Explanation

Item 20 data does not indicate excessively rapid growth that might strain support systems. Over the three years from 2022 to 2024, the number of franchised outlets shows a slight decline, while company-owned outlets fluctuated. This controlled pace suggests the franchisor is not overextending its resources through aggressive expansion, which is a positive indicator for the quality of franchisee support.

Potential Mitigations

• A business advisor can help you evaluate the franchisor's growth strategy in relation to its support capabilities.
• When speaking with existing franchisees, it is wise to ask about their perception of the quality and responsiveness of franchisor support.
• Your accountant can cross-reference growth trends in Item 20 with the franchisor's financial capacity in Item 21.

Explanation

JBF was established in 2003 and has been franchising since that time. With over two decades of operating history and more than 140 franchised outlets, the system is well-established and not new or unproven. This extensive track record reduces the risks typically associated with an emerging franchise concept.

Potential Mitigations

• A business advisor can help you analyze the franchisor's long history to understand its evolution and stability.
• Engage with long-tenured franchisees to gain insights into how the system has changed and been managed over the years.
• Your attorney should still review the entire FDD for any recent changes in ownership or strategy that could affect this stability.

Explanation

The business operates in the children's and maternity consignment market. This is a well-established retail sector driven by consistent consumer needs for budget-friendly family items. The business model does not appear to be based on a short-lived trend or fad, suggesting a more stable, long-term market demand.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term viability of the consignment model in your area.
• Discuss the sustainability of the business with your financial advisor, considering its resilience to economic shifts and competition.
• You should evaluate local competition to ensure the market in your specific territory is not oversaturated.

Explanation

Item 2 shows that the key C-Level and Executive Leadership Team members have extensive and relevant experience. Notably, several executives, including the CEO and COO, are also current or former multi-unit franchisees within the JBF system. This deep, practical experience from both sides of the franchise relationship is a significant strength and suggests a management team that understands franchisee challenges and operations.

Potential Mitigations

• Discuss the management team's background and hands-on experience with your business advisor to appreciate its value.
• When speaking with current franchisees, you can inquire about their direct experiences with the leadership team's support and guidance.
• Your attorney can help you understand how this experience translates into the support obligations outlined in the Franchise Agreement.

Explanation

This specific risk was not identified in the FDD Package. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. This is generally positive, as it avoids risks associated with short-term profit motives that can sometimes conflict with the long-term health of franchisees.

Potential Mitigations

• Your attorney can help verify the franchisor's ownership structure through corporate records to confirm the absence of private equity involvement.
• Engage a business advisor to research the franchisor's history for any past private equity ownership and its effects.
• Always ask the franchisor about any potential future plans to sell the company.

Explanation

This specific risk was not identified in the FDD Package. Item 1 states that JBF has no parent company. The franchisor operates as a standalone entity, which simplifies the corporate structure and means the financial statements provided in Item 21 directly reflect the health of the franchising company.

Potential Mitigations

• Your accountant should review the provided financial statements, understanding they represent the complete financial picture of the franchisor.
• A business advisor can confirm that there are no undisclosed affiliated companies that could impact the franchise relationship.
• Your attorney can verify the corporate structure as disclosed in Item 1.

Explanation

This specific risk was not identified in the FDD Package. Item 1 clearly states that JBF has no predecessors. This means the company's historical performance, litigation history, and franchisee data as presented in the FDD represent the complete track record of the current operating entity, which simplifies due diligence.

Potential Mitigations

• Your attorney should review the FDD to confirm the absence of any predecessor entities.
• A business advisor can help you focus your due diligence on the single, continuous operating history of the company.
• When speaking to long-term franchisees, you can confirm their entire experience has been with the same franchisor entity.

Explanation

Item 3 does not disclose any material litigation filed against JBF. It does disclose two past lawsuits against a key executive, Robert Petre, related to his prior employment, but notes these were dismissed with prejudice in 2016. The absence of litigation against the franchisor itself, especially concerning fraud or breach of contract, is a positive indicator and suggests a lower risk in this area.

Potential Mitigations

• Your attorney should review the Item 3 disclosures and confirm the non-JBF nature and final status of the past litigation mentioned.
• It is always prudent to ask your attorney if they recommend conducting an independent search for any recent litigation not yet disclosed.
• When speaking with franchisees, you can inquire about the franchisor's general approach to resolving disputes.