Explanation

This risk was not identified. The franchise system has been shrinking, not growing rapidly, over the past three years according to Item 20 data. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is notable. However, system shrinkage presents its own set of risks regarding brand health and franchisee morale which should be investigated.

Potential Mitigations

• In any franchise, a business advisor can help you evaluate the franchisor's capacity to support its current and planned number of units.
• Reviewing the franchisor's financials with an accountant is crucial to assess if they have the resources for sustainable growth and support.
• Speaking with existing franchisees provides insight into the quality and timeliness of the support they currently receive.

Explanation

This risk was not identified in the FDD package. The franchisor has been in operation and offering franchises for over a decade, indicating it is an established system, not a new or unproven one. Investing in a new system carries higher risks due to the lack of a proven track record, which does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the franchisor's track record and the system's long-term viability.
• Speaking with a range of franchisees, from the newest to the most established, is a key step in understanding the system's evolution and support consistency.
• Your accountant should review financial statements to confirm the franchisor's stability and reliance on ongoing royalties versus initial fees.

Explanation

This risk does not appear to be present. The business model, focused on group fitness, nutrition, and lifestyle coaching, operates within the established health and wellness industry. While fitness trends change, the core offering does not seem to be based on a short-term fad. A key risk in franchising is investing in a concept with limited long-term consumer demand.

Potential Mitigations

• Engage a business advisor to research the long-term market demand and competitive landscape for this specific type of fitness center in your local area.
• Question the franchisor about their strategies for innovation and adapting the business model to evolving consumer fitness preferences.
• Assessing the business's resilience to economic shifts and changing trends with a financial advisor is a prudent step.

Explanation

The risk of inexperienced management was not identified. Item 2 shows that key executives, including the CEO and President, have extensive, multi-decade experience in both the fitness industry and in managing franchise systems. In any franchise investment, inexperienced leadership can pose a significant risk to the quality of support and strategic direction, which does not appear to be a concern here.

Potential Mitigations

• It is always wise to research the backgrounds of key executives of any franchise you are considering with a business advisor.
• During your calls with existing franchisees, you should ask about their direct experiences and the quality of guidance they receive from the management team.
• Your attorney can help you understand the implications of any recent management turnover.

Explanation

This specific risk was not identified, as there is no indication in Item 1 that the franchisor is owned by a private equity firm. PE ownership can sometimes introduce risks related to prioritizing short-term returns over long-term system health. The franchisor appears to be privately held, which can present a different set of opportunities and challenges for a franchisee.

Potential Mitigations

• Regardless of ownership structure, your attorney should carefully review the franchisor's right to assign the franchise agreement to a new owner.
• A business advisor can help you research the ownership structure and any known investment timelines.
• When interviewing franchisees, it can be useful to ask about their perception of the company's long-term vision versus short-term goals.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the parent and affiliate companies. Failure to disclose a parent company, especially one that guarantees the franchisor's performance or controls critical aspects of the business, is a significant disclosure violation that can hide financial or operational risks from a prospective franchisee. That does not appear to be the case here.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all relevant parent and affiliate entities are listed.
• If a parent company guarantee is offered, an accountant should review the parent's financial statements to assess its strength.
• Understanding the roles and relationships between the franchisor, parent, and affiliates is a key part of due diligence.

Explanation

This risk was not identified. The FDD discloses a name change and the recent acquisition of assets from another franchise system, but it does not indicate a history of operating under a failed predecessor. In some cases, a franchisor may be a successor to a failed system, which could hide a legacy of litigation or high franchisee turnover. That does not appear to be the case here.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessors and their history.
• A business advisor can help you conduct independent research on any disclosed predecessor companies.
• Speaking with long-term franchisees can provide valuable history about the system's evolution.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or breach of contract, can be a major red flag indicating systemic problems. The absence of such disclosures is a positive sign, though it does not guarantee a dispute-free relationship.

Potential Mitigations

• Even with no disclosed litigation, your attorney can conduct public record searches to see if any non-material or recently filed lawsuits exist.
• During discussions with former franchisees, it is prudent to ask about their experiences with disputes, whether or not they resulted in litigation.
• A business advisor can help you assess the overall health of franchisee-franchisor relations.