Explanation

This specific risk was not identified. The provided audited financial statements for 2022, 2023, and 2024 show positive net income and stockholder's equity. Financial instability can be a major risk, as a struggling franchisor may be unable to provide support or invest in the brand, potentially jeopardizing your investment. It is crucial for a franchisor to be financially sound to fulfill its obligations.

Potential Mitigations

• Have your accountant review the franchisor's financial statements for the past three years to assess trends in revenue, profitability, and cash flow.
• Discuss the franchisor's financial health and capitalization with your financial advisor to understand their ability to support the system.
• Your attorney can help verify if any state has required the franchisor to post a bond or escrow due to financial weakness.

Explanation

This risk was not identified in the FDD for Master Franchisees. Item 20 data shows zero terminations, non-renewals, or cessations over the past three years. High turnover is a significant red flag, often indicating systemic problems like franchisee unprofitability, poor support, or an unviable business model. A stable franchise system is a positive indicator for prospective franchisees.

Potential Mitigations

• Engage a business advisor to analyze the Item 20 tables for trends over time, comparing openings against cessations.
• It is crucial to contact a representative sample of current and former franchisees from the lists in Exhibit D to discuss their experiences.
• Your attorney can help you formulate key questions to ask former franchisees about why they left the system.

Explanation

The system is experiencing rapid percentage growth, adding 4 new master franchises to its base of 10 in 2024, a 40% increase in one year. While growth is positive, it can strain a franchisor's ability to provide adequate support and training. This could potentially dilute the quality of assistance you receive as a new franchisee.

Potential Mitigations

• Discuss the franchisor's plans for scaling its support infrastructure to match unit growth with your business advisor.
• Inquire with recent franchisees from the list in Exhibit D about the quality and timeliness of the support they received.
• An accountant should review the financial statements to assess if the franchisor has the capital to support this expansion.

Explanation

The current franchisor entity was formed in 2022. However, the business model and system have been in operation under a predecessor since 1996, with master franchises offered since 2004. While the new corporate structure presents some uncertainty, the long operational history of the system itself reduces the risk typically associated with an entirely new and unproven franchise.

Potential Mitigations

• Engaging a business advisor to research the history of the predecessor company and its performance can provide valuable context.
• Your attorney should review the transfer of assets and obligations from the predecessor to the current franchisor entity.
• Discuss the transition with franchisees who have been with the system before and after the 2022 change.

Explanation

This risk was not identified. Commercial janitorial services are a well-established and essential industry, not a business model based on a fleeting trend. Investing in a fad business is risky because customer demand can disappear, leaving you with a long-term contract for a business with no market. This franchise appears to be in a stable, long-term service sector.

Potential Mitigations

• A business advisor can help you analyze the long-term market demand for the franchisor's products or services in your area.
• Your accountant can help model the business's potential resilience to economic downturns or shifts in consumer behavior.
• Always research the broader industry trends before investing in any franchise, with assistance from a business consultant.

Explanation

This risk was not identified. Item 2 indicates that the key management personnel have extensive experience with the Mint Condition system, with some executives having been with the company or its predecessor for over a decade. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• A business advisor can help you vet the backgrounds of the key executives listed in Item 2.
• When speaking with current franchisees, ask specific questions about the competence and accessibility of the management team.
• Your attorney can research public records for any undisclosed prior business failures associated with the management team.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially impacting franchisee support and costs. The franchisor appears to be operated by individuals with long-term involvement in the business.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 through public records.
• Engaging a business advisor to research the ownership group's history and track record with other businesses is a wise step.
• When speaking to current franchisees, ask if there have been any recent changes in ownership or management philosophy.

Explanation

This specific risk was not identified, as Item 1 discloses the parent company, Mint Condition Holdings, LLC. Full transparency about parent companies is important, as their financial health and business practices can directly impact the franchisor's ability to support you. The FDD should provide parent company financials if they guarantee the franchisor's obligations.

Potential Mitigations

• Your attorney should review Item 1 to ensure all parent and affiliate companies are properly disclosed.
• An accountant should assess if parent company financial statements are required and, if so, whether they have been provided and audited.
• If a parent company guarantees the franchisor's performance, your attorney must review the terms of that guarantee.