Explanation

This risk was not identified in the FDD package. Rapid system growth can sometimes strain a franchisor's ability to provide adequate support to all its franchisees. A sudden explosion in the number of outlets could potentially dilute the quality of training, field support, and other resources you rely on, affecting your business's performance and the overall brand reputation. Careful review of Item 20 data is needed to assess this possibility.

Potential Mitigations

• Have your accountant review the rate of franchise sales in Item 20 in conjunction with the franchisor's financial statements to gauge if support resources are keeping pace.
• Engaging a business advisor to question the franchisor about their infrastructure for franchisee support is a valuable step.
• Consulting with both new and established franchisees can provide insight into whether the quality of support has changed over time.

Explanation

This risk was not identified in the FDD package. MaidPro Franchise, LLC (MaidPro) has been offering franchises since 1997 and has a substantial number of operating units. Investing in a new or unproven franchise system carries higher risk because the business model, brand recognition, and support systems are not yet well-established, which can increase the likelihood of business failure.

Potential Mitigations

• An attorney should review the franchisor's history in Item 1 to confirm its experience in the industry.
• A business advisor can help assess the maturity and stability of a franchise system.
• Speaking with the earliest franchisees in a system can offer valuable perspectives on its evolution and the franchisor's long-term capabilities.

Explanation

This risk was not identified in the FDD package. The residential and commercial cleaning industry is generally considered a staple service rather than a fad. Fad businesses are tied to temporary trends and can face a sharp decline in consumer interest, leaving you with a potentially obsolete business model and ongoing contractual obligations long after the trend has passed.

Potential Mitigations

• A business advisor can help you conduct market research to evaluate the long-term consumer demand for the services offered.
• Analyzing a company's history of innovation and adaptation is a key task for a prospective franchisee.
• Your financial advisor should be consulted to assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the management team has extensive experience in franchising and related industries, with many executives having held senior roles at other large franchise companies like Liberty Tax. Inexperienced management can be a significant risk, as it may lead to weak support systems, poor strategic decisions, and an inability to effectively guide franchisees.

Potential Mitigations

• It is always prudent to have your business advisor research the backgrounds of the key executives listed in Item 2.
• Asking current franchisees about their direct experiences with the management team can provide valuable, real-world insight.
• Your attorney should confirm that the experience described matches the needs of a large franchise system.

Explanation

The franchisor is a subsidiary of its parent company, HS Group Holding Company, LLC, which also acts as the guarantor of performance. The FDD properly discloses this relationship and includes the parent's audited financial statements as required. In some cases, a franchisor might be a thinly capitalized entity whose financial weakness is masked by not disclosing a controlling parent, but that does not appear to be the situation here as disclosures are provided.

Potential Mitigations

• A franchise attorney should always confirm that the relationship between a franchisor and its parent is clearly disclosed in Item 1.
• It's wise for your accountant to analyze the financial statements of the guarantor to ensure it has the capacity to back the franchisor's obligations.
• Understanding the terms of the parent's guarantee in Exhibit B is a task for your legal counsel.

Explanation

This risk was not identified in the FDD package. MaidPro discloses that it converted from a Massachusetts corporation to a Delaware LLC in 2020 but does not list any predecessors from which it acquired the system. Failure to disclose a predecessor with a negative history (such as bankruptcies or high litigation) would be a significant red flag, as it could hide systemic issues that you might inherit.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors and their history.
• A business advisor can assist in researching the history of the brand to see if it operated under other names or entities.
• If a predecessor is identified, speaking with long-term franchisees about their experience under the prior ownership is critical.

Explanation

Item 3 discloses one recent arbitration initiated by MaidPro against a former franchisee for allegedly failing to pay amounts owed and violating the non-competition covenant. While any litigation is noteworthy, this single action initiated by the franchisor for contract enforcement does not appear to represent a pattern of franchisee-initiated lawsuits alleging fraud or systemic problems. A pattern of such lawsuits would be a much more significant concern.

Potential Mitigations

• A franchise attorney should review the details of any disclosed litigation to understand the nature of the claims and the outcome.
• Consider discussing the franchisor's approach to dispute resolution with current and former franchisees.
• It is wise to have your attorney perform an independent search for litigation involving the franchisor that may not have been required to be disclosed.