Explanation

This risk was not identified as Lush Lawn is a new franchisor with no history of operating franchisees. Item 20, which tracks franchisee turnover, shows no franchise closures, terminations, or transfers because none existed. In established systems, high turnover can be a significant red flag indicating potential problems with profitability, support, or the business model itself, requiring careful investigation.

Potential Mitigations

• Since there are no former franchisees to contact, discussing the business model's viability with your accountant is critical.
• It is wise to have a business advisor help you assess the support structure for the first wave of franchisees.
• Legal counsel should be consulted to understand the termination and renewal terms that will govern your future relationship.

Explanation

This risk is not currently present as the franchise system is new and has not yet experienced growth. For established systems, rapid expansion can strain a franchisor's ability to provide adequate support, site selection assistance, and training. It is a factor to monitor if you join a system that begins to sell franchises very quickly.

Potential Mitigations

• As a potential early franchisee, you should ask the franchisor about their growth plans and the infrastructure in place to support future expansion; a business advisor can help evaluate their plans.
• Discuss with your accountant the franchisor's financial capacity to scale its support services.
• Your attorney can review the support obligations outlined in the Franchise Agreement.

Explanation

The risk of the business being a short-lived fad was not identified. Lawn care is a well-established and long-standing service industry with consistent demand. For franchises in newer or trend-driven sectors, it is important to assess whether the business model has long-term viability beyond the initial popularity of its products or services, as contractual obligations will outlast a fad.

Potential Mitigations

• A business advisor can help you research the stability and long-term trends within the local lawn care market.
• It is advisable to have your accountant help you create financial projections based on the established nature of the industry.
• Even in a stable industry, consulting an attorney about the franchise term and renewal conditions is important for long-range planning.

Explanation

This risk was not identified, as there is no disclosure in Item 1 indicating that the franchisor is owned by a private equity firm. When PE firms own franchises, they may prioritize short-term returns over the long-term health of the system. This can sometimes lead to reduced franchisee support, increased fees, or a quick sale of the brand.

Potential Mitigations

• It is always good practice to have your attorney review Item 1 and any related corporate documents to fully understand the franchisor's ownership structure.
• Asking the franchisor about their long-term vision for the brand can provide insight into their philosophy, a discussion you can have with a business advisor.
• An accountant can review the financials for signs of heavy debt that might influence operational decisions.

Explanation

This risk was not identified. The FDD clearly discloses the relationship with the affiliate, AGS Holdings, Inc., in Item 1. When a franchisor is a subsidiary, the parent company's financial information can be crucial, especially if the parent guarantees the franchisor's performance. A failure to disclose a parent company or its necessary financial data can obscure the true financial stability of the system.

Potential Mitigations

• Have your attorney review the corporate structure disclosed in Item 1 to confirm all relevant entities are identified.
• If an affiliate provides essential services or guarantees, your accountant should assess the financial health of that entity if possible.
• It is important to ask your business advisor about the operational role of any parent or affiliate company.

Explanation

This risk is not present, as the franchisor states in Item 1 that it has no predecessors. In cases where a franchisor has acquired the business from a previous entity, it is important to scrutinize the predecessor's history for issues like litigation, bankruptcy, or high franchisee failure rates, as these could indicate underlying problems with the system that may have been inherited.

Potential Mitigations

• To verify this, your attorney could conduct independent public record searches for the brand name and key personnel.
• In any franchise review, asking management about the complete history of the brand is a good due diligence step to discuss with a business advisor.
• Your accountant can review financial statements for any notes related to business acquisitions.

Explanation

This FDD does not disclose any litigation in Item 3. For any franchise you consider, this item must be reviewed carefully. A pattern of lawsuits filed by franchisees alleging fraud or by the franchisor against franchisees for fee collection can be a significant red flag about the health of the franchise relationship and the system's viability.

Potential Mitigations

• It's prudent to have your attorney conduct an independent public records search for litigation involving the franchisor and its principals.
• A business advisor can help you understand that a clean litigation record is positive but not a guarantee of future performance.
• Discussing any past disputes with current franchisees can provide valuable insight.