Explanation

The franchisor's ultimate parent, Neighborly Assetco LLC (the Guarantor), provided audited financial statements which do not show signs of instability such as negative net worth or a going concern note from auditors. The financials appear stable for a large, established entity. However, you should still have your accountant review the statements to understand the overall financial health and complex structure of the parent company that guarantees the franchisor's performance under the Franchise Agreement.

Potential Mitigations

• A franchise accountant should thoroughly analyze the provided financial statements, including all footnotes, to assess the franchisor's parent company's stability.
• Discuss with your financial advisor the implications of the franchisor's complex corporate structure and reliance on its parent for financial backing.
• It is prudent to verify with your attorney that the parent guarantee is robust and legally enforceable in your jurisdiction.

Explanation

This risk was not identified. The FDD's Item 20 outlet tables do not indicate a rate of growth so rapid that it would inherently suggest the support system is strained. However, rapid expansion in any franchise system can sometimes lead to diluted support, training, and resources for individual franchisees. It is important for a franchisor to scale its support infrastructure in line with its unit growth to maintain quality and franchisee satisfaction.

Potential Mitigations

• Engaging a business advisor to question the franchisor about their plans for scaling support services in line with future growth can provide valuable insight.
• In your discussions with current franchisees, it is wise to ask about the current quality and responsiveness of franchisor support.
• Your accountant can review the franchisor's financial statements to assess if they are investing adequately in support infrastructure.

Explanation

This risk was not identified. Mr. Appliance SPV LLC (Mr. Appliance) and its predecessor have been offering franchises since 1996 and had 310 franchises operating at the end of 2024. The system is well-established, with experienced management. An unproven system presents higher risks, as its business model, brand recognition, and support structures may not be fully developed or validated in the marketplace, potentially leading to higher failure rates for franchisees.

Potential Mitigations

• For any franchise, it is beneficial to have a business advisor help you research the brand's history and market position.
• Even in an established system, consulting your attorney to understand the operating history of your specific territory is a valuable step.
• An accountant's review of financial trends over several years can confirm the stability that comes with a proven track record.

Explanation

This risk was not identified. The appliance repair industry is a mature and established service sector with consistent consumer demand, not typically considered a fad. A fad business is tied to a short-lived trend, which can expose you to significant risk of failure when consumer interest wanes. Your long-term franchise agreement would still be binding even if the market for the service disappears, creating a significant financial hazard.

Potential Mitigations

• For any business investment, a business advisor can help you conduct independent market research to assess long-term consumer demand.
• It is wise to evaluate a business model's resilience to economic shifts and changing consumer trends with your financial advisor.
• Your attorney can help you understand your long-term obligations under the franchise agreement regardless of market changes.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key officers and executives have extensive experience in franchising and with the franchisor or its parent, Neighborly. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems. Assessing the background of the leadership team is a crucial part of due diligence.

Potential Mitigations

• A business advisor can help you research the backgrounds of the key management personnel for any franchise opportunity.
• Speaking with current franchisees is a good way to gauge their confidence in the current management team's leadership and support.
• Your attorney can help you understand if there are any contractual protections in the event of significant management turnover.

Explanation

This risk was not identified. The FDD properly discloses the parent company, Neighborly Assetco LLC, and provides its audited financial statements in Exhibit C. Neighborly Assetco LLC also provides a full performance guarantee in Exhibit D. In some franchise systems, a thinly capitalized franchisor may be controlled by a larger, more stable parent. Failure to disclose that parent or its financial data could obscure significant risks about the true financial backing of the franchise.

Potential Mitigations

• Your accountant should always review the financial statements of both the franchisor and any guaranteeing parent entity.
• It is prudent to have your attorney review the terms of any parent guarantee to ensure it is legally sufficient and enforceable.
• Engaging a business advisor can help you understand the complete corporate structure and identify any potential risks associated with it.

Explanation

This risk was not identified. The FDD discloses the predecessor entity, Mr. Appliance LLC, and its history. In some cases, franchisors may acquire a system from a predecessor with a troubled history. If that history, including past litigation, bankruptcies, or high franchisee turnover, is not fully disclosed, you may be unaware of existing systemic problems, which could impact your future success. A clear understanding of a brand's lineage is important for due diligence.

Potential Mitigations

• Your attorney should always carefully review the FDD's disclosures about any predecessor entities.
• For any franchise with a predecessor, speaking with long-term franchisees who operated under the previous ownership provides valuable historical context.
• A business advisor can assist in researching the public record and reputation of any predecessor entities.