Explanation

This risk was not identified. The FDD's Item 20 data does not indicate excessively rapid growth that might outpace the franchisor's support capabilities. In fact, the number of franchised units has seen a net decrease over the past three years. Evaluating a franchisor's ability to manage its growth is important, as uncontrolled expansion can lead to diluted support, poor quality control, and harm to the brand's reputation, affecting all franchisees.

Potential Mitigations

• Your business advisor can help evaluate the franchisor's infrastructure for supporting its current number of franchisees.
• Ask existing franchisees about the quality and timeliness of support they receive from the corporate office.
• An accountant should review the franchisor's financial statements to assess if they are investing adequately in support systems.

Explanation

This risk was not identified. KWR is a long-established franchise system, having offered franchises since 1995. Its management team, as detailed in Item 2, has extensive experience in both real estate and franchising. For new franchises, however, it is critical to assess the franchisor's track record and management expertise, as an unproven system carries higher risks of failure, inadequate support, and an untested business model, which can jeopardize your entire investment.

Potential Mitigations

• For any franchise, a business advisor should help you vet the operational history and the specific franchising experience of the management team.
• Speaking with the earliest franchisees in a system provides valuable insight into the franchisor's learning curve and support evolution.
• Your accountant should always review the financials of a new franchisor to ensure it is adequately capitalized for growth and support.

Explanation

This risk was not identified. Real estate brokerage is a well-established industry, and KWR's business model has been in operation for decades. However, when considering any franchise, it is important to evaluate whether the business relies on a temporary trend or fad. A business model without long-term, sustainable consumer demand could leave you with a worthless investment and ongoing liabilities after public interest fades. Your business advisor can help you research market trends.

Potential Mitigations

• Engage a business advisor to research the long-term market demand and sustainability for the specific industry and business model.
• Review the franchisor's history of innovation and adaptation to past market changes.
• Your financial advisor can help assess the business's resilience to economic cycles and shifting consumer preferences.

Explanation

This risk was not identified. KWR's management team, as disclosed in Item 2, has significant experience in both the real estate industry and in managing a large franchise system. When evaluating any franchise, a lack of management experience in franchising can be a major red flag, as it may signal underdeveloped support systems, a misunderstanding of the franchisee-franchisor relationship, and a higher potential for strategic errors that negatively impact your business.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Asking existing franchisees about their direct experiences with the management team can reveal insights into their competence and supportiveness.
• An attorney can help you understand the legal implications if the franchisor's inexperience leads to a failure to provide promised support.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the parent companies of KWR, up to the Trident IX Funds. Proper disclosure of parent companies is crucial, as a parent's financial health, business practices, or operational control can significantly impact the franchisor. Failure to disclose a parent company or provide its financial statements when required can hide risks and prevent you from making a fully informed decision.

Potential Mitigations

• An attorney should always verify the corporate structure described in Item 1 to ensure all parent and affiliate relationships are disclosed.
• If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing the parent's audited financial statements.
• Inquire with your business advisor about the reputation and operational history of any parent companies disclosed.

Explanation

This risk was not identified. KWR discloses one predecessor, Keller Williams, Inc. Realtors, and provides its history. In any franchise offering, it is important that a franchisor fully discloses any predecessor entities. A failure to do so could conceal a history of business failures, litigation, or other problems that would be material to your investment decision. An incomplete history prevents a full assessment of the brand's track record and potential inherited liabilities.

Potential Mitigations

• Your attorney can help you review Item 1 for any mention of predecessors and assess the adequacy of the information provided.
• If a predecessor is mentioned, further due diligence into its history of litigation or bankruptcy can be conducted with the help of a business advisor.
• Ask long-term franchisees about their experience under any previous ownership or predecessor entities.