Explanation

This risk was not identified. The audited financial statements for Michelin Retread Technologies, Inc. (MRTI) in Exhibit G show consistent profitability, positive equity, and an unqualified opinion from the auditor. This suggests the company is financially stable and capable of supporting the franchise system, which is critical for long-term success.

Potential Mitigations

• A thorough review of the franchisor's financial statements with an experienced franchise accountant is essential to verify financial health.
• Your accountant should analyze trends in revenue, profitability, and cash flow over the past three years to assess stability.
• Engage a business advisor to discuss the franchisor's financial capacity to provide the support and services promised in the FDD.

Explanation

This risk was not identified. A review of Item 20 data for the past three years indicates a stable to slightly growing franchise system. The number of franchisee terminations, non-renewals, and other cessations is low relative to the total number of outlets, which suggests a generally stable and healthy franchisee base.

Potential Mitigations

• It is always prudent to have your accountant analyze the franchisee turnover tables in Item 20 to calculate the churn rate yourself.
• Contacting current and former franchisees listed in the FDD can provide direct insight into franchisee satisfaction and the reasons for any departures.
• Discussing system stability and franchisee relations with a business advisor will help you gauge the health of the franchise network.

Explanation

This risk was not identified. The outlet data in Item 20 shows a mature and very large system with a stable number of units over the last three years. The system is not undergoing the kind of rapid expansion that might strain the franchisor's ability to provide adequate support to new and existing franchisees.

Potential Mitigations

• Asking the franchisor about their future growth plans can help you understand the potential pace of expansion.
• Confirmation of the franchisor's support infrastructure and staffing levels can be a valuable discussion to have with a business advisor.
• Your accountant can assess if the franchisor's financial statements support a scalable support system.

Explanation

This risk was not identified. Item 1 indicates that MRTI was formed in 1997 and began offering this type of franchise in 2010. With over 300 outlets and more than a decade of franchising experience, the system is mature and well-established, not new or unproven.

Potential Mitigations

• When evaluating any franchise, it is important to confirm the system's operating history and track record with a business advisor.
• A franchise attorney can help you understand the legal history and stability of the franchisor entity.
• Speaking with long-term franchisees provides insight into the evolution and maturity of the business model.

Explanation

This risk was not identified. The franchise is for professional truck fleet services, a core component of the commercial transportation and logistics industry. This represents a fundamental business-to-business service rather than a fad or a concept based on a short-lived consumer trend, suggesting long-term market demand.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for the franchise's products and services.
• Evaluating the franchisor's commitment to research and development can provide insight into the business's ability to adapt to market changes.
• Consider the business's resilience to economic cycles and changing trends with your financial advisor.

Explanation

This risk was not identified. Item 2 details a management team composed of individuals with extensive, long-term careers within Michelin North America. Their deep experience in the relevant industry and with a major corporation suggests a stable and knowledgeable leadership team, reducing risks associated with inexperienced management.

Potential Mitigations

• Always research the backgrounds of the key executives listed in Item 2 with the help of your business advisor.
• It is wise to ask current franchisees about their perception of the management team's competence and support.
• An attorney can help investigate if there has been high turnover in key management positions, which could be a red flag.

Explanation

This risk was not identified. Item 1 discloses that the franchisor is a subsidiary of Michelin Corporation, a global industrial company, not a private equity firm. Therefore, risks often associated with a private equity owner's potentially short-term investment horizon and strategies do not apply here.

Potential Mitigations

• It is crucial to have your attorney help you understand the complete ownership structure of the franchisor as disclosed in Item 1.
• Researching the parent company's history and reputation in the marketplace can provide valuable context for your investment decision.
• Discuss the implications of the ownership structure with your business advisor.

Explanation

This risk was not identified. Item 1 clearly discloses the franchisor's parent and affiliate companies. The FDD provides audited financial statements for the franchisor entity itself, which appear strong, making the inclusion of parent financials unnecessary under franchise law.

Potential Mitigations

• A franchise attorney should always verify that the disclosure of parent and affiliate companies in Item 1 is complete.
• If a franchisor is thinly capitalized, an accountant should confirm if parent company financials or guarantees are required and provided.
• Understanding the full corporate web is a key piece of due diligence for your attorney to perform.

Explanation

This risk was not identified. Item 1 of the FDD does not list any predecessor entities from which MRTI acquired the franchise system. The franchisor appears to be the original and continuous operator of this franchise concept, so risks from an undisclosed or troubled predecessor history are not present.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessors.
• If a predecessor is identified in any FDD, researching its history for litigation or bankruptcy is a critical due diligence step for your attorney.
• A business advisor can help you understand the implications if a brand has changed hands multiple times.

Explanation

This risk was not identified. Item 3 of the FDD explicitly states, "No litigation is required to be disclosed in this Disclosure Document." This indicates an absence of recent, material legal actions involving the franchisor, particularly with its franchisees, which is a positive sign for the health of the franchise relationship.

Potential Mitigations

• Even with a clean Item 3, engaging an attorney to perform an independent search for litigation can sometimes uncover relevant information.
• Discussing the franchisor's relationship with its franchisees with a significant number of current and former operators is crucial.
• Your business advisor can help you assess if the franchisor seems litigation-averse or prone to disputes.