Explanation

This risk was not identified in the FDD package. Generally, high franchisee turnover, as seen in Item 20, can be a major red flag. It may signal systemic problems such as low profitability, inadequate support, or franchisee dissatisfaction with the business model. Analyzing the rates of terminations, non-renewals, and other departures over several years provides insight into the health and stability of the franchise system.

Potential Mitigations

• An accountant can help you analyze the franchise turnover tables in any FDD to calculate the true rate of churn.
• It is always a good practice to ask a business advisor to help you compare a franchise's turnover rate against industry benchmarks.
• Speaking with former franchisees listed in Item 20, with questions prepared by your attorney, can reveal reasons for their departure.

Explanation

This risk was not identified in the FDD package. MedXwaste is a very small system and is not experiencing rapid growth. Generally, when a franchisor expands too quickly, its support systems for training, site selection, and operations can become strained. This can lead to a decline in the quality of support for all franchisees, potentially harming your business operations and the brand's reputation.

Potential Mitigations

• In any franchise review, a business advisor can help assess if the franchisor's support infrastructure is keeping pace with its growth.
• Your accountant should review the financials to see if the franchisor is reinvesting in support systems during periods of growth.
• Consulting with an attorney about the franchisor's contractual support obligations is a crucial step.

Explanation

This risk was not identified in the FDD package. The medical waste disposal industry is a long-established and necessary service sector, not a temporary trend. A fad business, based on a fleeting trend, can pose a significant risk as consumer interest may decline, leaving you with a long-term contract for a business with diminished demand. Evaluating the long-term market need for a product or service is a key part of due diligence.

Potential Mitigations

• A business advisor can help you research the long-term market demand and sustainability for any franchise concept you consider.
• It is prudent to ask an attorney to review the franchise agreement's term length relative to the business's projected lifecycle.
• Your financial advisor can help assess a business model's resilience to shifting consumer trends and economic changes.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key managers have several years of direct operational experience in the medical waste industry through the parent company, which began operating in 2013. In general, a lack of relevant industry or franchising experience in a franchisor's management team can be a significant risk, potentially leading to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• You should always vet the backgrounds of the key management team with your business advisor.
• Speaking with existing franchisees about the quality of management's support is a valuable due diligence step.
• Your attorney can help you understand the contractual obligations of the franchisor, regardless of management experience.

Explanation

This risk was not identified in the FDD package. MedXwaste does not appear to be owned by a private equity firm. Generally, PE ownership can introduce risks, as the firm's focus might be on short-term investor returns rather than the long-term health of the franchise system. This could lead to cuts in franchisee support, increased fees, or a quick sale of the franchise system.

Potential Mitigations

• If a franchisor is PE-owned, a business advisor can help you research the firm's track record with other franchise brands.
• Your attorney should review the assignment clause to understand what happens if the system is sold.
• Discussing any changes since a PE acquisition with existing franchisees is a prudent step.

Explanation

This risk was not identified in the FDD package. MedXwaste clearly discloses its parent company in Item 1. It is important for a franchisor to disclose parent companies, especially if the franchisor itself is a new or thinly capitalized entity. The parent's financial health and any guarantees it provides can be material to your investment decision, and failure to disclose this information can obscure significant risks.

Potential Mitigations

• An attorney can help verify a franchisor's corporate structure and determine if all relevant parent companies have been disclosed.
• If a parent company provides a guarantee, your accountant should review its financial statements if they are provided.
• Your attorney can assess the legal enforceability and scope of any parent company guarantee.

Explanation

This risk was not identified in the FDD package. The franchisor states it has no predecessors. Generally, it is important to review the history of any predecessors disclosed in Item 1. A negative history involving litigation, bankruptcy, or high franchisee failure under a previous owner could indicate unresolved systemic issues that have been passed on to the current franchisor, posing a risk to new franchisees.

Potential Mitigations

• Your attorney should always carefully review any disclosed predecessor history in Items 1, 3, and 4.
• A business advisor can help you research a predecessor's track record and reputation.
• Asking long-term franchisees about their experiences under any previous ownership is a valuable due diligence step.

Explanation

This risk was not identified in the FDD package, as Item 3 discloses no litigation. A pattern of lawsuits filed by franchisees against a franchisor, especially those alleging fraud or misrepresentation, is a major red flag. Similarly, a high number of lawsuits filed by the franchisor against its franchisees can indicate an overly aggressive or litigious culture, which could pose a risk to your future relationship.

Potential Mitigations

• It is crucial to have a franchise attorney thoroughly review any and all litigation disclosed in Item 3.
• Your attorney can conduct independent research into the court records of disclosed cases for more detail.
• Speaking with franchisees involved in past or present litigation can provide invaluable, direct insight.