Explanation

This risk was not identified in the FDD package. Moxie BBB Franchising, LLC (Moxie) began offering franchises in 2014, indicating it has over a decade of franchising experience. An unproven system can be risky due to underdeveloped support and brand recognition. Always verify a franchisor's history and speak with the earliest-joining franchisees to understand how the system has evolved and matured over time.

Potential Mitigations

• Consulting a business advisor to research the franchisor's history and market reputation is a wise step in any franchise evaluation.
• Your attorney can help you formulate questions for long-term franchisees about the franchisor's early-stage support and growth.
• An accountant should still review financial statements to ensure the business model has proven to be sustainable over its operating history.

Explanation

This risk was not identified. The salon and beauty bar industry is a long-established and durable consumer service sector, not a business model based on a short-term trend or fad. Investing in a fad business is risky because customer demand can disappear quickly, potentially leaving you with a failing business and long-term contractual obligations to the franchisor and your landlord.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape for any industry you consider entering.
• Before investing, it is important to assess whether a business concept has sustained consumer demand beyond current popularity.
• Evaluating a company's plans for future innovation and adaptation with your financial advisor can help gauge its long-term viability.

Explanation

This risk was not identified. Item 2 shows that the key executives and founders have been with the franchise system since its early years (2014-2017) and possess prior relevant business experience. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher potential for system-wide problems. It is always important to vet the backgrounds of the key personnel.

Potential Mitigations

• A business advisor can assist you in researching the backgrounds and track records of the franchisor's key executives.
• Speaking with current franchisees about their confidence in the management team's leadership and support is a critical due diligence step.
• Your attorney can help you understand the management team's experience as disclosed in Item 2 of the FDD.

Explanation

This risk was not identified. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. When a PE firm owns a franchisor, there can be a risk that decisions are focused on short-term investor returns, potentially at the expense of long-term franchisee profitability and support. This can manifest as increased fees, reduced support quality, or a quick sale of the system.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise system.
• If a franchisor is owned by a private equity firm, it is wise to investigate the firm's reputation and history with other franchise brands.
• Your attorney should review the assignment clauses in the franchise agreement to understand what happens if the system is sold.

Explanation

This risk was not identified in the FDD package. The franchisor, Moxie, does not appear to have a parent company. When a franchisor is a subsidiary of a parent company, it is important to understand the financial health and influence of that parent, as it can impact the stability and support offered by the franchisor. In some cases, a parent company will guarantee the franchisor's obligations.

Potential Mitigations

• An accountant should always review the franchisor's financial statements for notes regarding parent companies or financial guarantees.
• Your attorney can help determine if a parent company's financial statements should have been included in the FDD under franchise rules.
• Understanding the complete corporate structure is essential for a full risk assessment, a task for which your business advisor can provide help.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states that the franchisor has no predecessors. A franchisee should always review a franchisor's history, including any predecessors, as this can reveal important information about the brand's track record, historical challenges, or prior management issues that could still affect the system.

Potential Mitigations

• Reviewing Item 1 of the FDD with your attorney is crucial to understand the full history of the franchise system.
• A business advisor can help you research the history of a brand, including any past names or ownership structures.
• If predecessors exist, it's important to ask current long-term franchisees about their experiences under previous ownership.

Explanation

This risk was not identified. Item 3 discloses one lawsuit initiated by the franchisor to enforce a non-compete agreement against a former party. The FDD does not show a pattern of litigation where franchisees are suing the franchisor for fraud, misrepresentation, or similar claims. A pattern of such lawsuits can be a major red flag indicating systemic problems with the franchisor's practices.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review the litigation history disclosed in Item 3.
• Understanding the nature and outcome of any lawsuits is critical to assessing potential risks.
• Consider that even a single lawsuit could reveal important information about the franchisor's business practices.