Explanation

This risk was not identified. The audited financial statements for the predecessor entity and recent unaudited financials for Keystone Insurers Group, LLC (Keystone LLC) show a strong financial position, including significant positive net worth and operating cash flow. There are no indicators of financial instability like a going concern note. A financially healthy franchisor is better positioned to provide support and grow the brand, which is a positive factor for your investment.

Potential Mitigations

• An accountant should review the financial statements, including footnotes, to independently confirm the franchisor's financial health and stability.
• Discuss the franchisor's financial strategy and plans for future investments in the system with your business advisor.
• Ask your attorney to verify if any financial performance bonds are required by the state, which can offer protection if a franchisor's financial situation deteriorates.

Explanation

This risk was not identified. The franchisor's predecessor began offering franchises in 1999, indicating a long-established system with significant operational history. An unproven system presents higher risks related to the viability of the business model and the adequacy of support, so the long track record here is a positive indicator. However, a recent corporate reorganization warrants a careful review of current management and strategy.

Potential Mitigations

• Inquiring with long-tenured franchisees about the evolution of the system and its support can provide historical context.
• A business advisor can help you analyze how the franchisor has adapted to market changes over its long history.
• Your attorney should review the details of the recent corporate reorganization to understand its implications for the franchise relationship.

Explanation

This risk was not identified. The franchise operates in the insurance industry, which is a well-established and essential sector of the economy, not a temporary trend or fad. A business based on a fad carries the risk of collapsing when consumer interest wanes, so the stable, long-term nature of the insurance market is a significant mitigating factor for this type of risk.

Potential Mitigations

• Your business advisor can help you research the long-term outlook for the independent insurance agency sector.
• Discussing the stability and trends within your local insurance market with an industry professional would be beneficial.
• An accountant can help you model financial projections based on the stable, long-term nature of the industry.

Explanation

This risk was not identified. Item 2 of the FDD shows that the franchisor's management team has extensive and long-term experience in the insurance and franchise industries. Inexperienced leadership can pose a significant risk through poor strategic decisions and inadequate support. Therefore, the deep industry experience of the executive team is a positive attribute for the system.

Potential Mitigations

• A business advisor can help you research the backgrounds and track records of the key executives listed in Item 2.
• When speaking with current franchisees, asking about their perception of the management team's competence and vision is a valuable exercise.
• Your attorney can help you understand the roles and responsibilities of the key personnel within the franchise structure.

Explanation

This risk was not identified. The FDD discloses the franchisor's predecessor and provides information on its history, including litigation and bankruptcy, in Items 3 and 4. There are no indications of a troubled history, such as a pattern of lawsuits or financial failure, associated with the predecessor. A clean predecessor history suggests a more stable foundation for the current franchise system.

Potential Mitigations

• Asking long-tenured franchisees about their experiences under any predecessor entity can provide valuable historical perspective.
• A business advisor can help you conduct independent research on the predecessor's reputation and historical performance.
• Your attorney should confirm that all required predecessor information appears to be properly disclosed in the FDD.

Explanation

This risk was not identified. Item 3 of the FDD discloses two legal cases, neither of which suggests a pattern of fraud, misrepresentation, or other systemic issues in the franchisor's dealings with its franchisees. A history of significant franchisee-initiated litigation can be a major red flag, so its absence in this FDD is a positive indicator for the health of the franchise relationship.

Potential Mitigations

• Your attorney should still review the details of any disclosed litigation to understand the nature of the claims and their potential impact.
• It is good practice to ask current franchisees about their awareness of any disputes within the system, even those not rising to the level of disclosed litigation.
• A business advisor can help you research public records for any other legal disputes involving the franchisor or its principals.