Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide adequate training and support. A prospective franchisee should evaluate if the franchisor's support infrastructure, as detailed in Item 11, appears robust enough to handle its rate of expansion shown in Item 20.

Potential Mitigations

• Your business advisor can help you analyze the system's growth rate in Item 20 against the support resources described in Item 11.
• It is prudent to ask current franchisees about the quality and responsiveness of the support they receive from the franchisor.
• Discussing the franchisor's plans for scaling its support systems with your attorney can provide insight into their long-term strategy.

Explanation

This risk was not identified in the FDD package, as MITS LLC began franchising in 2013 and has over a decade of experience. For new systems, risks include an unproven business model, undeveloped support systems, and minimal brand recognition. A prospective franchisee should always check the franchisor's franchising history in Item 1.

Potential Mitigations

• When evaluating a newer system, a business advisor can help you conduct extra due diligence on the founders' industry and franchising experience.
• Speaking with the earliest franchisees of a new system is critical to understanding the real-world performance and support.
• An accountant should carefully scrutinize the capitalization of a new franchisor to assess its ability to fund its obligations.

Explanation

This risk was not identified in the FDD package. The window coverings industry is a well-established market tied to home ownership and improvement, not a short-term trend. A business tied to a fad risks a sharp decline in consumer demand after initial popularity fades, potentially leaving you with a long-term contract for a business with a short-term appeal.

Potential Mitigations

• A business advisor can help you research the long-term market demand and sustainability for any franchise concept you consider.
• It is wise to evaluate a franchisor's plans for innovation and adaptation to stay relevant beyond current trends.
• Discussing the business model's resilience to economic shifts with a financial advisor is a crucial step.

Explanation

This risk was not identified in the FDD package. The management team disclosed in Item 2 has extensive experience in both the window coverings industry and in franchising, with some executives having been franchisees themselves. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• When considering a franchise, it is important to have a business advisor help you vet the management team's background and specific experience.
• Contacting existing franchisees to inquire about their confidence in the management team's leadership and support is a key due diligence step.
• Your attorney can help you understand the experience and background information provided in Item 2.

Explanation

This risk was not identified in the FDD package, as there is no indication in Item 1 that MITS LLC is owned by a private equity firm. When PE firms own franchisors, they may prioritize short-term returns over the long-term health of the system, which can sometimes lead to reduced franchisee support or increased fees.

Potential Mitigations

• If a franchisor is owned by a private equity firm, your business advisor can help you research the firm's track record with other franchise brands.
• Speaking with franchisees who have been in the system before and after a PE acquisition can provide valuable insight.
• Your attorney should review any clauses related to the sale or assignment of the franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that MITS LLC has no parent company. If a franchisor is a subsidiary of a larger entity, the parent's financial health can be crucial, especially if the franchisor itself is thinly capitalized. Failure to disclose a parent or provide its financials when required can obscure significant risks.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure as disclosed in Item 1.
• If a parent company exists and guarantees the franchisor's obligations, an accountant should review the parent's financial statements.
• A business advisor can help you understand the relationship between a franchisor and its parent company.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a predecessor that operated a different business model (dealerships) and the transition appears straightforward. In other cases, a franchisor's predecessor could have a history of litigation or bankruptcy that, if not properly disclosed, would hide important information about the system's past performance and inherited challenges.

Potential Mitigations

• It is important for your attorney to carefully review any information about predecessors in Items 1, 3, and 4.
• A business advisor can help you research the history and reputation of any predecessor business.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable context.

Explanation

This risk was not identified in the FDD package, as Item 3 discloses no litigation. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, is a significant red flag. It can indicate systemic problems with the franchisor's business practices or franchisee relationships. Conversely, a high number of suits filed by the franchisor against franchisees might suggest an overly litigious approach.

Potential Mitigations

• Your attorney should always be engaged to carefully review any litigation disclosed in Item 3 of an FDD.
• If litigation is present, obtaining and reviewing the actual court filings can provide much more detail than the FDD summary.
• A business advisor can help you understand if the nature and volume of litigation are unusual for a franchise system of its size and age.