Explanation

This risk was not identified in the FDD package. As a new franchise system that began operating in 2023, the Item 20 tables do not yet show a history of franchisee turnover. Generally, high turnover rates can signal systemic problems, such as a lack of profitability or franchisee dissatisfaction. Monitoring this data in future FDDs would be important for existing franchisees.

Potential Mitigations

• A business advisor can help you assess the typical failure and turnover rates for this specific industry to establish a baseline for future comparison.
• During your due diligence calls with current franchisees, ask about their satisfaction and future intentions with the franchise.
• Your attorney can explain the various reasons franchisees may leave a system, including terminations, non-renewals, and transfers.

Explanation

This specific risk was not identified in the FDD package. The business model, insurance appraisal services, appears to serve a persistent market need rather than being tied to a fleeting trend. However, any business can be affected by technological or market shifts. It is important for a business model to demonstrate long-term consumer demand and adaptability to ensure its viability beyond initial market excitement.

Potential Mitigations

• A discussion with a business advisor can help you independently assess the long-term market demand for the product or service.
• It is important to evaluate the franchisor's plans for innovation, adaptation, and staying relevant over the long term.
• Consider the sustainability of the business model and its resilience to economic downturns with your financial advisor.

Explanation

This risk was not identified in the FDD package, as Item 1 does not disclose ownership by a private equity firm. Generally, when a franchisor is owned by a private equity firm, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of the franchisees and the brand. This can sometimes lead to increased fees, reduced support, or a quick resale of the system.

Potential Mitigations

• It is wise to research the track record of any owning entity, like a private equity firm, with other franchise systems they control.
• Your attorney can help you understand the implications of the 'Assignment' clause in the franchise agreement if the system is sold.
• Speaking with franchisees who have been through an ownership change can provide valuable insight, a conversation a business advisor can facilitate.

Explanation

This risk was not identified in the FDD package. The franchisor, Legacy LLC, does not appear to be a subsidiary of a parent company whose financials would be required. In situations where a franchisor is a newly formed or thinly capitalized subsidiary of a larger parent, the parent's financial statements may be necessary for a complete risk assessment. Without them, the true financial backing and viability of the franchise system could be obscured.

Potential Mitigations

• Your attorney can verify the corporate structure if there's any suspicion of an undisclosed controlling parent company.
• If a parent company exists and provides a guarantee, your attorney should confirm that its financial statements are provided and meet legal requirements.
• Your accountant can help assess the financial strength of a parent company and the value of any guarantees it provides.

Explanation

This risk was not identified in the FDD package. Item 1 states that Legacy LLC does not have any predecessors. When a franchisor has a predecessor, it is important to review that entity's history for issues like litigation, bankruptcy, or high franchisee turnover. An incomplete disclosure of a predecessor's history could hide systemic problems that may carry over to the new franchisor, preventing you from seeing the full picture of the brand's past performance.

Potential Mitigations

• An attorney should carefully review Item 1, 3, and 4 for any mention of predecessors and their history.
• Independent research into a predecessor's track record can sometimes uncover issues not detailed in the FDD, a task a business advisor may assist with.
• If a predecessor exists, asking long-term franchisees about their experience under the prior ownership is a key due diligence step.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. A pattern of franchisee-initiated lawsuits alleging fraud, misrepresentation, or breach of contract can be a major red flag, potentially indicating systemic issues in the franchise relationship. Similarly, a high volume of franchisor-initiated lawsuits against franchisees might suggest an overly aggressive or punitive operational culture.

Potential Mitigations

• Having an attorney review the details and allegations of any disclosed litigation is a critical step in due diligence.
• It can be beneficial to perform independent research for additional context on disclosed cases with the help of your legal counsel.
• Speaking with franchisees involved in past or present litigation can provide invaluable, firsthand insight.