Explanation

The franchise system is very new, having commenced franchising in 2022. Item 20 data does not yet show a meaningful history of terminations, non-renewals, or other cessations. While turnover cannot be assessed, the FDD does disclose that the franchisor's affiliate has a network of 38 dealers operating under a similar model who have not converted to franchises. This large group of non-converting operators could be a relevant factor in understanding the system's appeal.

Potential Mitigations

• Your business advisor can help you analyze the available Item 20 data in the context of the system's young age.
• Contacting the franchisees listed in Exhibit H to discuss their experience is a critical step your attorney can help you prepare for.
• It is important to ask the franchisor about their plans for the existing 38 dealers and why they have not converted.

Explanation

This specific risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and quality control. If a franchisor's support infrastructure does not keep pace with its unit sales, new and existing franchisees may suffer from a decline in service quality and brand standards, potentially impacting profitability and operational success across the entire system. Careful analysis of growth versus support capacity is important.

Potential Mitigations

• To understand if a franchisor can support its growth, an accountant can review its financial statements for investment in support infrastructure.
• A business advisor can help you compare the rate of unit growth in Item 20 with the franchisor's staffing and resources described in Item 2 and Item 11.
• Speaking with franchisees who joined at different times can provide insight into whether support quality has changed as the system grew.

Explanation

This risk was not identified as a primary concern in the FDD package. The portable storage and moving industry is established and generally not considered a fad. However, any business can be subject to market trends. A fad business relies on temporary popularity, and investing in one is risky because demand can disappear, leaving you with long-term contractual obligations and a worthless investment. Evaluating a concept's long-term consumer relevance is a key part of due diligence.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term demand for the services offered.
• Evaluating the franchisor's plans for innovation and adaptation to market changes is a useful discussion to have with your attorney.
• Consider the business model's resilience to economic shifts and changing consumer behavior with your financial advisor.

Explanation

The executives of MI-BOX LLC have been involved with the affiliate MI-BOX Holding Company since 2004, indicating significant experience in the mobile storage industry. Therefore, this specific risk of inexperienced management is not identified as a primary concern. Inexperienced leadership in a franchise system can pose a risk because it may lead to flawed strategies, insufficient franchisee support, and an inability to navigate industry challenges, jeopardizing the success of the entire network.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Talking to existing franchisees about the quality and effectiveness of the management team's support is a valuable step.
• Your attorney can help you ask targeted questions about the leadership's specific experience in managing a franchise system, not just an affiliated company.

Explanation

This risk was not identified in the FDD package, as there is no disclosure in Item 1 indicating ownership by a private equity firm. When a franchisor is PE-owned, there can be a focus on short-term returns over the long-term health of the brand. This might lead to increased fees, reduced support, or a quick sale of the system, creating uncertainty for franchisees. Understanding the ownership structure is important for assessing the franchisor's priorities.

Potential Mitigations

• A business advisor can help research the ownership structure of any franchise you are considering.
• If a franchisor is owned by a private equity firm, your attorney should review the assignment clauses in the franchise agreement.
• Discussions with franchisees who have been through a sale of the system can offer valuable insights.