Explanation

This risk was not identified in the FDD. Item 20 data does not show high franchisee turnover. Generally, high turnover can signal systemic problems like unprofitability or poor franchisor support. Since this is a very young system with few franchisees, monitoring this data in future FDDs will be important to assess long-term health and franchisee satisfaction.

Potential Mitigations

• Asking current franchisees about their satisfaction and future intentions can provide insight into system health; your business advisor can help frame questions.
• Your accountant should help you model different scenarios to understand the profitability needed to ensure a long-term commitment.
• Before signing, discussing the franchisor's long-term vision and support plans with management may offer some reassurance.

Explanation

The risk of rapid growth straining franchisor resources was not identified. Item 20 data indicates a very slow and deliberate pace of franchise expansion. In general, explosive growth can be a red flag, as a franchisor's support systems may not keep pace, leading to inadequate assistance for franchisees. The franchisor's slow growth may also be a point of discussion.

Potential Mitigations

• It is wise to ask the franchisor about their future growth plans and how they intend to scale support systems accordingly.
• A business advisor can help you assess whether the franchisor’s infrastructure is appropriate for its current size and planned growth.
• Discussing the quality and responsiveness of current support with existing franchisees provides a valuable baseline.

Explanation

This specific risk was not identified in the FDD package. The business of providing mental and behavioral health services is an established industry with sustained demand, not a new or trendy concept. However, any business can be subject to changing market dynamics and consumer preferences, which is a general business risk to consider.

Potential Mitigations

• A business advisor can help you independently assess the long-term market demand for these specific services in your local area.
• Evaluate the franchisor's plans for innovation, adaptation, and staying relevant by reviewing the services described in Item 1 and the support offered in Item 11.
• 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. Item 1 does not indicate that the franchisor is owned by a private equity firm. Generally, private equity ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, which may affect decisions on fees, support, and vendor relationships.

Potential Mitigations

• It's good practice to research the ownership structure of any franchisor with your business advisor.
• Your attorney can help you understand the franchisor's rights to sell or assign the franchise system to a new owner.
• Speaking with franchisees about their relationship with ownership can provide insight into the franchisor's long-term philosophy.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor has no predecessors. In general, if a franchisor acquired a system from a predecessor, it would be important to investigate that predecessor's history for issues like litigation, bankruptcy, or high franchisee failure rates, as these could indicate inherited problems with the brand or operating system.

Potential Mitigations

• For any franchise, your attorney can help you review Item 1 carefully for any mention of predecessors.
• If a predecessor is identified, a business advisor can assist in researching its historical track record through public records and news archives.
• Asking long-term franchisees about their experiences under any previous ownership can provide valuable context.

Explanation

This risk was not identified in the FDD. Item 3 discloses that there is no material litigation required to be disclosed. A pattern of franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits against franchisees can be a major red flag, potentially indicating systemic problems with the franchisor's practices or the viability of the business model.

Potential Mitigations

• Your attorney should always review Item 3 of any FDD to analyze the nature, status, and outcome of any disclosed litigation.
• Independent legal research, with the assistance of an attorney, can sometimes uncover additional context or cases not required to be disclosed.
• Always treat a pattern of fraud claims or an unusually high volume of litigation as a significant concern.