Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows the system size has been stable or slightly shrinking over the last three years, not undergoing rapid expansion. Rapid growth can strain a franchisor's resources, potentially leading to inadequate support for new and existing franchisees. A stable or slow growth rate can sometimes indicate a more mature, focused system, but it's important to understand the reasons behind the trend.

Potential Mitigations

• It is wise to ask the franchisor about their strategic growth plans for the next five years with your business advisor.
• An accountant can analyze Item 20 data to confirm system stability and franchisee unit trends.
• In discussions with your attorney, confirm that there are no development agreements in place that would signal an imminent, unsupported growth spurt.

Explanation

This risk was not identified in the FDD Package. The franchisor's predecessor began franchising in 2000, and the current entity has operated since 2018. Item 2 shows that the management team has significant experience. A new or unproven system can be risky due to the lack of a track record, underdeveloped support systems, and minimal brand recognition. This franchise, however, appears to be an established system with experienced leadership.

Potential Mitigations

• Confirm the length of the system's operating history and management's tenure with your business advisor.
• Your attorney can review Items 1 and 2 to ensure the history and experience are accurately represented.
• Discussions with long-term franchisees can provide insight into the system's evolution and stability, a process your business advisor can facilitate.

Explanation

This risk was not identified in the FDD Package. The dry cleaning and laundry industry is a long-established service sector, not a temporary fad. Fad businesses carry a high risk because their popularity can decline quickly, potentially leaving you with a worthless business and ongoing contractual obligations. The stability and sustained demand for garment care services suggest this is not a primary concern for this franchise system.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the professional garment care industry in your specific market.
• Evaluate the franchisor's plans for innovation and adaptation to changing consumer habits with your financial advisor.
• Your accountant should review the provided financial performance data in Item 19 for signs of stable, long-term demand.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the franchisor's key executives have extensive experience in the dry cleaning industry and with the Lapels brand, some having served with the predecessor company for many years. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support. The disclosed leadership team appears to have substantial relevant experience.

Potential Mitigations

• Verifying the specific industry and franchising experience of each executive listed in Item 2 is a prudent step for your business advisor.
• Your attorney can help you formulate questions for the franchisor regarding management's direct experience in supporting a franchise network.
• Speaking with current franchisees about their direct experiences with the management team's competence and support is crucial.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the parent company is Clean Franchise Brands, Corp. and does not suggest ownership by a private equity firm. Private equity ownership can introduce risks related to a focus on short-term returns over the long-term health of the brand, which might lead to cost-cutting in support services or pressure to increase fees. The ownership structure here does not appear to present this specific risk.

Potential Mitigations

• A business advisor can help you research the ownership structure of the parent company, Clean Franchise Brands, Corp., for any PE involvement.
• Your attorney should confirm the corporate structure and ultimate beneficial owners if there are any doubts.
• Inquiring about the long-term strategic vision for the brand can provide insight into the owners' philosophy.

Explanation

This risk was not identified in the FDD Package. The FDD discloses the existence of a parent company, Clean Franchise Brands, Corp., in Item 1. Failing to disclose a parent or a controlling entity can obscure the true financial backing and stability of the franchisor. While the parent company's financials are not included, which can be a separate concern, the existence of the parent is properly disclosed as required.

Potential Mitigations

• Your accountant should evaluate the franchisor's standalone financials and note the extensive related-party transactions with the parent.
• It is advisable to ask the franchisor about the financial health of the parent company, as it provides significant management services.
• Your attorney can advise on whether the parent company's financials should have been included based on FTC rules.