Explanation

The risk of the franchisor expanding too quickly, potentially outpacing its ability to provide adequate support, was not identified. Item 20 shows a relatively slow and steady growth from four to eleven franchised outlets over a three-year period. However, you should still monitor system growth and assess whether support levels remain consistent if the pace of expansion accelerates in the future.

Potential Mitigations

• During due diligence calls, you should ask existing franchisees about the quality and timeliness of the support they currently receive from MDCFS.
• A discussion with your business advisor can help you evaluate the franchisor's current support infrastructure relative to its number of franchisees.
• Your attorney can review the franchisor's contractual support obligations to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD package. The business of providing HVAC and air duct cleaning services is a well-established sector within the home and commercial services industry. It is not based on a recent, fleeting trend, suggesting a lower risk of customer demand disappearing due to changing fads. Long-term success will likely depend more on operational execution and marketing than on the novelty of the service itself.

Potential Mitigations

• A conversation with your business advisor can help you analyze the long-term stability and demand within the local HVAC service market.
• Investigate the level of local competition to gauge the maturity and sustainability of the market.
• Your attorney can review the franchise agreement's term length to ensure it aligns with a business model that is not trend-dependent.

Explanation

This specific risk was not identified in the FDD package. Item 1 indicates the franchisor does not have a parent company, and there is no information in the document to suggest it is owned or controlled by a private equity firm. Franchisees are therefore more likely dealing directly with the founding or long-term management team, which can have both benefits and drawbacks compared to a PE-owned entity.

Potential Mitigations

• Your attorney can help you verify the corporate ownership structure through public records to confirm the information in Item 1.
• It is still valuable to have a business advisor help you research the background and business philosophy of the key owners listed in Item 2.
• Asking current franchisees about their direct relationship with ownership can provide insight into the corporate culture.

Explanation

This risk was not identified. FDD Item 1 clearly states that MDCFS has no parent companies or affiliates. The financial statements provided in Item 21 are for the franchisor entity itself. Therefore, there is no concern that risks are being hidden within an undisclosed or unaudited parent company's financials.

Potential Mitigations

• Your attorney can confirm the corporate structure and lack of a parent company through a review of public business filings.
• An accountant should still review the provided franchisor financials carefully to assess the company's standalone health.
• Asking the franchisor to confirm its ownership structure in writing is a good due diligence practice.

Explanation

This risk was not identified. FDD Item 1 states that the franchisor has no predecessors. This means you are evaluating a system without a history of prior ownership, which simplifies due diligence by eliminating the need to investigate a predecessor's track record for issues like past litigation, bankruptcy, or high franchisee turnover.

Potential Mitigations

• Your attorney can help verify the franchisor's formation date and history to confirm the absence of a predecessor entity.
• A business advisor can assist in focusing due diligence on the current management team's direct experience, since there is no predecessor history to analyze.
• Confirmation from the franchisor in writing about the lack of predecessors can provide additional assurance.

Explanation

This risk was not identified. Item 3 of the FDD states that MDCFS has no litigation that requires disclosure. This absence of reported lawsuits, especially claims of fraud or misrepresentation from other franchisees, is a positive indicator. However, this only covers litigation that meets the specific disclosure requirements of franchise law.

Potential Mitigations

• Your attorney can conduct independent public record searches for litigation involving the franchisor or its principals that might not meet the FDD disclosure threshold.
• Asking current and former franchisees if they are aware of any disputes, settled or ongoing, is a crucial part of due diligence.
• It is wise to get a written representation from the franchisor stating there is no other material litigation pending.