Explanation

This risk was not identified in the FDD package. High franchisee turnover, evidenced by a large number of terminations, non-renewals, or closures in Item 20, can be a major red flag. It often indicates systemic problems such as franchisee unprofitability, dissatisfaction, or inadequate franchisor support. The data provided for Miracle Method, LLC (MM LLC) does not show a high rate of such exits, suggesting a stable system in this regard.

Potential Mitigations

• With your business advisor, you should still contact a significant number of current and former franchisees from the lists in Exhibit C to discuss their experiences.
• An accountant can help you analyze the turnover data presented in Item 20 over the three-year period to confirm system stability.
• Your attorney can help you ask targeted questions to the franchisor about any franchisee exits to understand the context.

Explanation

This risk was not identified in the provided documents. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees. While Miracle Method shows steady growth in Item 20, the rate of expansion does not appear to be so rapid as to inherently suggest that its support infrastructure would be overwhelmed. This indicates a more measured and potentially sustainable growth strategy.

Potential Mitigations

• Engaging a business advisor to assess the franchisor's support staff-to-franchisee ratio can provide insight into their capacity for support.
• A discussion with both new and established franchisees about the quality and timeliness of franchisor support is a valuable step.
• Your attorney should review the franchisor's contractual support obligations outlined in Item 11.

Explanation

This risk was not identified in the FDD. Miracle Method began franchising in 1996, as stated in Item 1, indicating it is a mature and well-established franchise system. An unproven system would present higher risks associated with untested business models, undeveloped support structures, and minimal brand recognition. The long operating history of this franchise suggests these particular risks are not present here.

Potential Mitigations

• It is still prudent to discuss the franchisor’s long history and evolution with a business advisor to understand its trajectory.
• Consulting with long-term franchisees can provide valuable perspective on how the system has adapted over time.
• Your attorney can review the current Franchise Agreement to see how its terms may have changed from earlier versions.

Explanation

This risk was not identified in the FDD package. The business of surface refinishing for kitchens and bathrooms, as described in Item 1, is a long-standing category within the home services industry. It is not dependent on a short-term trend or fad. This suggests a more stable market demand compared to businesses built around novelties, which can face collapse when consumer interests shift.

Potential Mitigations

• A business advisor can help you research the local market demand and competitive landscape for surface refinishing services.
• Discussing the industry's stability and long-term outlook with your financial advisor is a recommended step.
• Reviewing the franchisor's plans for service innovation in Item 11 with a business consultant can provide insight into future relevance.

Explanation

This risk was not identified in the documents. Item 2 of the FDD details the backgrounds of the management team. The executives at Miracle Method and its parent companies, Threshold Brands and The Riverside Company, have extensive experience in franchising and managing various service-based brands. This level of experience suggests that the leadership team understands the complexities of operating a franchise system and supporting franchisees, which is a positive factor.

Potential Mitigations

• Engaging a business advisor to review the management team's experience as detailed in Item 2 is still a valuable exercise.
• You should ask current franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you formulate questions for the franchisor about management's strategic vision for the brand.

Explanation

This risk was not identified. The FDD is transparent about its corporate structure, clearly identifying in Item 1 the franchisor, its immediate parent Threshold Brands, and the ultimate parent holding company, HS Group. Furthermore, Item 21 provides audited financial statements for the parent company, HS Group, which also guarantees the franchisor's performance. This level of disclosure provides a clearer picture of the overall organization's financial backing and stability.

Potential Mitigations

• Your accountant should still review the financials of the parent guarantor to assess its ability to back the franchisor.
• An attorney can confirm the legal structure and the enforceability of the parent's guarantee.
• Asking the franchisor about the relationship and flow of support between the parent and the franchisor is a good practice.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that Miracle Method, LLC has no predecessors that are required to be disclosed. This means the current franchisor has not recently acquired the system from another company, so there is no hidden history of predecessor bankruptcy, litigation, or high franchisee turnover to be concerned about. You are dealing directly with the long-term operator of the system.

Potential Mitigations

• Your attorney can still conduct public record searches to confirm the corporate history provided in Item 1.
• Asking long-term franchisees about the history of the company and any previous ownership structures can provide additional context.
• A business advisor can help you review the franchisor's conversion to an LLC in 2023 to understand its implications.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD, which must disclose certain types of current and past litigation, states that there is no litigation that requires disclosure. The absence of a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, is a positive indicator of the franchisor's relationship with its franchisees and its business practices.

Potential Mitigations

• Your attorney can still conduct independent public record and litigation searches to verify the information disclosed in Item 3.
• Asking current and former franchisees about any past or present disputes they are aware of is a critical due diligence step.
• A business advisor can help you understand what types of litigation are common in this industry for context.