Explanation

This risk was not identified in the FDD package. Item 20 data shows very low turnover, with no terminations, non-renewals, or other cessations of business in the last three years. High franchisee turnover can be a significant red flag, often indicating systemic problems such as unprofitability, inadequate support, or franchisee dissatisfaction. A stable system is generally a positive indicator for a prospective franchisee.

Potential Mitigations

• It is still valuable to discuss the business environment and their satisfaction levels with a range of current franchisees listed in Item 20.
• Ask your business advisor to help you analyze the Item 20 tables for any subtle trends over the three-year period provided.
• Your attorney can help you formulate questions for the franchisor regarding their relationship with their franchisees and the reasons for any past transfers.

Explanation

This risk was not identified in the FDD. The data in Item 20 shows that the franchise system is mature and has experienced slow, stable growth, adding a net of one franchised unit in the most recent year. Rapid growth can sometimes strain a franchisor's ability to provide adequate support to all its franchisees, so slow growth in a mature system is not necessarily a negative indicator.

Potential Mitigations

• Discuss the franchisor's future growth plans and how they intend to scale support systems with your business advisor.
• Ask your attorney to review the franchisor's obligations for support as outlined in Item 11 and the Franchise Agreement.
• It is prudent to ask existing franchisees about the quality and consistency of the support they currently receive from the franchisor.

Explanation

This risk was not identified in the FDD. Item 1 and Item 20 show that the franchisor and its predecessor have been in business since 2002 and have been franchising for many years. The system is well-established with over two dozen operating units. An unproven system carries higher risks related to the viability of the business model and the adequacy of support, which does not appear to be the case here.

Potential Mitigations

• A conversation with long-standing franchisees about the system's evolution and their long-term experience can still provide valuable insights.
• Your accountant can review the multi-year financial statements in Item 21 to confirm the system's financial history and stability.
• Engaging a business advisor to evaluate the brand's current market position and long-term viability remains a sound strategy.

Explanation

This risk was not identified in the FDD. The business, which specializes in home organization solutions like custom closets and wall beds, operates in a well-established and durable market sector. It is not based on a new or fleeting consumer trend. Investing in a business with sustained, long-term consumer demand is generally less risky than investing in a concept that may be a short-lived fad.

Potential Mitigations

• It is still beneficial to conduct independent market research with a business advisor to understand the competitive landscape and demand in your specific area.
• Your financial advisor can help assess the business model's resilience to economic downturns and shifts in consumer spending habits.
• Ask the franchisor about their plans for future product and service innovation to ensure the brand remains competitive.

Explanation

This risk was not identified in the FDD. The executive biographies in Item 2 indicate that the management team has extensive and long-term experience within both the company and the home organization industry. The founder, for example, has been with the business since 1989. Experienced management is a key factor in a franchisor's ability to provide effective support and strategic direction.

Potential Mitigations

• Speaking with current franchisees about their direct experiences with the management team's accessibility and support is still a recommended step.
• A business advisor can help you further assess the leadership team's reputation and track record within the franchising community.
• Your attorney can review Item 2 to ensure the disclosed experience is relevant to managing a franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 and the accompanying financial statements in Item 21 indicate that the franchisor is a privately held corporation controlled by its founder. There is no mention of ownership or control by a private equity firm. This structure can sometimes lead to a greater focus on the long-term health of the brand rather than short-term investor returns.

Potential Mitigations

• It is good practice to confirm the ownership structure with the franchisor directly.
• Your attorney should review the Franchise Agreement for any clauses that would permit an easy sale of the company to another entity, such as a private equity firm.
• A business advisor can help you research the franchisor's history and reputation for long-term commitment to its brand.

Explanation

This risk was not identified in the FDD. Item 1 appears to properly disclose the franchisor entity, Closets Unlimited of New Jersey, Inc., and its key affiliate, MSP Manufacturing, Inc. There is no indication of a controlling parent company whose financial information has been omitted. Proper disclosure of all controlling entities is crucial for a complete assessment of the franchise system's overall financial health and structure.

Potential Mitigations

• Your attorney can perform a corporate records search to verify the ownership structure and confirm the absence of any undisclosed parent entities.
• With your accountant, review the financial statements and related-party transaction notes to understand the financial relationship between the franchisor and its disclosed affiliate.
• Asking the franchisor to confirm its complete corporate structure in writing is a reasonable due diligence step.

Explanation

This risk was not identified in the FDD. Item 1 discloses that the franchisor acquired assets from a predecessor in 2013. However, Items 3 and 4 do not disclose any negative history, such as significant litigation or bankruptcy, associated with either the current franchisor or its predecessor. A clean operational history for both entities is a positive sign, suggesting a stable transition and operation.

Potential Mitigations

• A business advisor could assist in conducting independent online research for news or reviews related to the predecessor entity for a more complete history.
• It can be insightful to ask long-tenured franchisees about their experience during and after the ownership transition.
• Your attorney can confirm that the asset purchase agreement, if available, did not transfer unforeseen liabilities to the current franchisor.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. This suggests the absence of a pattern of lawsuits filed by franchisees alleging fraud or by the franchisor against franchisees, which would otherwise be a major red flag indicating potential systemic issues or an overly litigious culture. The lack of such litigation is a positive indicator of the health of the franchise relationship.

Potential Mitigations

• It is still advisable to ask current and former franchisees about their experiences with disputes and how the franchisor handles disagreements.
• Your attorney can conduct an independent search of court records to verify the absence of significant litigation involving the franchisor.
• Discuss the dispute resolution clauses in the Franchise Agreement with your attorney to understand the process should a conflict arise in the future.