Explanation

This risk was not identified in the FDD package. The franchise system is not growing rapidly; in fact, Item 20 data shows a significant contraction in the number of franchised units over the last three years. While this avoids the risks of strained support from over-expansion, it presents the more serious risk of a shrinking system, which is addressed in the 'High Franchisee Turnover' risk analysis.

Potential Mitigations

• Should a franchisor show rapid growth, it's wise to have your accountant review their financials to ensure they have the capital to support expansion.
• Engaging a business advisor to question the franchisor about their plans for scaling support infrastructure is a key due diligence step in a fast-growing system.
• Consulting with your attorney about negotiating service-level guarantees can be a prudent measure when investing in a rapidly expanding franchise.

Explanation

This specific risk was not identified in the FDD package. Modo Yoga began offering franchises in 2013 and therefore has over a decade of operational history. However, the business was acquired by a new parent company in December 2023, and much of the management team is new, which presents a related but different risk concerning management experience and strategic direction.

Potential Mitigations

• For a truly new system, your business advisor should help you perform deep due diligence on the founders' industry and franchising experience.
• It is critical that your accountant assess the capitalization of an unproven franchisor to ensure they can fund their initial support obligations.
• Seeking more favorable terms, such as lower initial fees or enhanced support guarantees, with the help of your attorney can help offset the risks of a new system.

Explanation

This risk was not identified as a primary issue. Item 1 discloses the parent entities of the franchisor. However, the financial statements of these parent entities, including the ultimate private equity owner Welch Capital Partners Inc., are not included in the FDD. While not always required, their absence means you cannot fully assess the financial strength of the entities that ultimately control the franchise system.

Potential Mitigations

• An attorney can advise on whether, given the franchisor's weak financials, the parent company's financial statements should have been disclosed.
• Your accountant can help you assess the risks of a thinly capitalized franchisor being backed by a parent of unknown financial strength.
• Inquire with a business advisor about the typical financial backing provided by private equity firms in such acquisitions.

Explanation

This specific risk was not identified. The FDD discloses a predecessor, Moksha Yoga Inc., which was dissolved in October 2018. While this is part of the brand's history, the more pressing concerns identified in this FDD relate to the current franchisor's financial performance and the recent change in ownership, rather than unresolved issues from a predecessor that ceased operating years ago.

Potential Mitigations

• For any franchise with a complex predecessor history, your attorney should carefully trace the lineage of the brand and its obligations.
• A business advisor can help you research the reputation and track record of any predecessor entities.
• Speaking with long-term franchisees who operated under the predecessor can reveal inherited systemic issues.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. This suggests the franchisor is not currently involved in significant legal disputes with franchisees or other parties concerning fraud, contract violations, or other relevant matters. However, the high rate of franchisee exits in Item 20 suggests a level of dissatisfaction that could potentially lead to future disputes.

Potential Mitigations

• An attorney can perform independent searches for litigation that may not have met the technical disclosure threshold but could still be relevant.
• When interviewing former franchisees, it is prudent to ask about any legal disputes or threats of litigation they may have had with the franchisor.
• Always have your legal counsel review the dispute resolution clauses in the Franchise Agreement, regardless of the litigation history.