Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a net decrease in the number of franchised outlets over the past three years, indicating the system is shrinking rather than growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support to new and existing franchisees.

Potential Mitigations

• A business advisor can help you assess whether a franchisor's support infrastructure is keeping pace with its unit growth.
• In any franchise system, it's wise to ask existing franchisees about the quality and timeliness of the support they receive from the corporate office.
• An accountant can analyze the franchisor's financials to see if they are reinvesting in support systems to manage growth.

Explanation

This risk was not identified. The business of providing professional head lice treatment is based on a persistent, recurring need among the population, particularly families with school-aged children. This is generally not considered a fad business that is dependent on a short-term trend.

Potential Mitigations

• For any business concept, it's wise to have a business advisor help you research the long-term market demand for its products or services.
• Asking your attorney to review the franchise agreement term length in relation to the business's expected lifecycle is a good practice.
• An accountant can help you model the financial return on investment to ensure it is achievable within a reasonable timeframe for the industry.

Explanation

This risk was not identified. The executives and directors listed in Item 2 have been with the company for many years, with some tenures extending over a decade. While the company's performance has been troubled, the management team itself is not new to the business or to their roles.

Potential Mitigations

• In any FDD, a thorough review of the management team's background in Item 2 with your business advisor is a key due diligence step.
• It is always a good idea to ask existing franchisees about their perception of the management team's competence and support.
• Your attorney can help you research the past business history of key executives for any potential red flags.

Explanation

This risk does not appear to be present. While Item 1 and Item 4 note that 37 Ventures, LLC is a major investor and guarantor, it is not described as a private equity firm in the traditional sense, which typically has a defined investment horizon and may prioritize short-term returns over long-term system health.

Potential Mitigations

• It's prudent to have your attorney investigate the ownership structure of any franchisor to understand who controls the company and their objectives.
• A business advisor can help research the track record of any institutional investors, like a private equity firm, with other franchise brands.
• Consulting with franchisees about any changes in system philosophy or support levels following an ownership change is a valuable exercise.

Explanation

This risk was not identified in the FDD package. The franchisor appears to be the primary operating entity, and its relationship with its guarantor, 37 Ventures, LLC, is disclosed in Items 1 and 4. There is no indication of a hidden or undisclosed parent company whose financial information might be material to your decision.

Potential Mitigations

• Your attorney can help you verify the corporate structure of a franchisor and determine if there are any parent companies whose financials should have been disclosed.
• If a parent company exists and provides a guarantee, your accountant should review the parent's financial statements.
• Understanding the full corporate family with the help of a business advisor is crucial to assess where the ultimate financial backing and risk lie.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors that are required to be disclosed. The company's history involves a change from a licensing to a franchise model, but this was an evolution of the same corporate entity, not an acquisition from a prior one.

Potential Mitigations

• For any franchise, your attorney should carefully review Item 1 for any disclosed predecessors and their history.
• It is important to understand if a franchise system has a history of failure under a different name by discussing it with long-term franchisees.
• A business advisor can help you research the history of the brand and any prior entities that may have been involved.