Explanation

This risk was not identified in the FDD package. Kwik Kar Franchising, LLC is a new system with no existing franchisees, so there is no history of rapid growth. A franchisor expanding too quickly may stretch its support staff thin, leading to inadequate training, site selection assistance, and operational guidance for its franchisees. This can negatively impact the entire system's performance and brand reputation. Evaluating a franchisor's support infrastructure relative to its growth rate is important.

Potential Mitigations

• A business advisor can help you analyze a franchisor's growth plans in relation to their staffing and support systems.
• Discussing the quality and timeliness of franchisor support with existing franchisees in a rapidly growing system is a key due diligence step.
• Your accountant can review the franchisor's financial statements to see if they are reinvesting in support infrastructure.

Explanation

This risk was not identified in the FDD package. The business provides automotive oil changes and preventive maintenance services, which is a well-established industry with consistent, long-term consumer demand. A fad business, by contrast, is tied to a short-lived trend, and its popularity can decline rapidly, leaving franchisees with a failing business and long-term contractual obligations. Assessing a concept's long-term viability is a crucial step before investing.

Potential Mitigations

• A business advisor can help you research the long-term market trends for any industry you consider entering.
• Evaluate a company's plans for innovation and adaptation to ensure the business model can outlast initial trends.
• An accountant can help you model the financial risks associated with a business concept that has a shorter potential lifespan.

Explanation

This risk was not identified in the FDD package. The management team detailed in Item 2 appears to have significant prior experience in the automotive service industry and in franchising with companies like Grease Monkey, SpeeDee, and Marco's Franchising. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an unrefined business model. Verifying the background of the leadership team is a key part of due diligence.

Potential Mitigations

• You should always ask a business advisor to help you vet the backgrounds of the key executives listed in Item 2.
• Speaking with existing franchisees is an excellent way to gauge their opinion of the management team's competence and support.
• An attorney can help you understand what contractual commitments the franchisor has made regarding support and training.

Explanation

This risk was not identified in the FDD package. Item 1 provides a detailed organizational chart disclosing the complex parent and affiliate structure, and the financial statements of the parent guarantor are included in Exhibit L. Full disclosure is critical because a franchisor could be a thinly capitalized subsidiary of a much larger, and potentially unstable, parent company. Without the parent's financials, you would have an incomplete picture of the overall financial health of the enterprise supporting your franchise.

Potential Mitigations

• Your attorney should always verify that the entities disclosed in Item 1 align with corporate records.
• If a parent company guarantees the franchisor's performance, an accountant must review the parent's financial statements.
• It's important to understand the relationships between all affiliated companies, which a business advisor can help clarify.

Explanation

This risk was not identified in the FDD package. Item 1 does not list any legal predecessors for Kwik Kar Franchising, LLC, as it is a new legal entity formed in 2024. When a franchisor has a predecessor, it is important to review that entity's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could carry over to the new entity. This information would be found in Items 1, 3, 4, and 20.

Potential Mitigations

• Your attorney should review Item 1 to identify any disclosed predecessors and their history.
• A business advisor can help you research the reputation and track record of any predecessor entities.
• If there is a predecessor, it is useful to speak with long-term franchisees who operated under that previous ownership.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation information is required to be disclosed. A pattern of lawsuits against a franchisor, especially claims of fraud or misrepresentation from other franchisees, can be a major red flag indicating systemic problems. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees might suggest an overly aggressive or litigious culture.

Potential Mitigations

• An attorney should always carefully analyze the nature, frequency, and outcomes of any lawsuits disclosed in Item 3.
• It's advisable to have your attorney conduct independent searches for litigation that may not have met the threshold for FDD disclosure.
• You should ask current and former franchisees about their experiences with disputes within the system.