Explanation

This risk was not identified. Mr. Electric SPV LLC's (Mr. Electric) predecessor has operated since 1994, and the system is well-established with over 200 units. An unproven system presents risks because its business model, brand recognition, and support structures are not yet tested in the market, which can lead to higher failure rates. This does not appear to be the case here, as the system has a long operational history.

Potential Mitigations

• When evaluating any franchise, it's wise to have your business advisor assess the franchisor's track record and the system's maturity.
• An accountant can help you review the financial statements for a history of stable, recurring royalty revenue, which indicates a mature system.
• Consulting with your attorney regarding the history of the brand and any predecessor companies is a key due diligence step.

Explanation

This risk was not identified. The electrical services industry represents a fundamental and ongoing need for residential and commercial properties, rather than a temporary trend. A fad business carries the risk that consumer interest may decline, leaving you with a long-term contract for a business with dwindling demand. Mr. Electric's long history since 1994 suggests it operates in a durable market sector.

Potential Mitigations

• For any business concept, having a business advisor help you research the long-term market demand and competitive landscape is a crucial step.
• Your financial advisor can assist in evaluating the resilience of the business model to economic cycles and changing consumer trends.
• It is prudent to review the franchisor's history of innovation and adaptation to ensure it remains relevant over time.

Explanation

This risk was not identified in the FDD. Item 2 shows that the key executives of Mr. Electric and its parent/manager, Neighborly, have extensive experience both within the specific industry and in managing large franchise systems. Inexperienced management can be a significant risk, as it may lead to inadequate support, poor strategic decisions, and underdeveloped operational systems. The management team here appears to be seasoned.

Potential Mitigations

• A thorough review of the executive backgrounds in Item 2 with a business advisor is always recommended to verify relevant industry and franchise experience.
• Asking current franchisees about their perception of the management team's competence and support provides valuable real-world insight.
• Your attorney can help you investigate the public reputation and track record of the key executives and their past ventures.

Explanation

This risk was not identified. The FDD discloses a complex parent and affiliate structure, but it includes the financial statements for the ultimate parent guarantor, Neighborly Assetco LLC, and the manager, Neighborly Company. The parent company provides a full guarantee of the franchisor's performance. Failure to disclose a controlling parent or its financials when required can hide significant risks about who truly backs the franchise.

Potential Mitigations

• Your attorney should always verify that the entities disclosed in Item 1 align with the financial statements provided in Item 21.
• An accountant's review of any parent guarantee is crucial to understand its scope and the financial strength of the entity providing it.
• If a franchisor is a newly formed subsidiary, asking your attorney to confirm the parent's commitment is a wise precaution.

Explanation

This risk was not identified. The FDD discloses that the current franchisor entity was formed in 2020 and acquired the assets from a predecessor, Mr. Electric LLC, which has operated since 1994. The document appears to provide the required historical information regarding the predecessor. Inadequate disclosure about a predecessor can obscure a history of litigation, bankruptcy, or franchisee failure, which are key indicators of system health.

Potential Mitigations

• When a predecessor is involved, it is prudent to have your attorney carefully review all disclosures related to it in Items 1, 3, and 4.
• A business advisor can help you research the predecessor's public reputation and history, if possible.
• Asking long-term franchisees about their experience under prior ownership can reveal important historical context.

Explanation

This risk was not identified. Item 3 discloses two past administrative actions against affiliate brands but does not show a pattern of franchisee-initiated litigation against Mr. Electric alleging fraud, misrepresentation, or other systemic issues. A pattern of such lawsuits can be a major red flag, suggesting fundamental problems with the franchisor's business practices, disclosure integrity, or franchisee relations. The absence of such a pattern here is a positive indicator.

Potential Mitigations

• It's always a good practice for your attorney to review the details of any disclosed litigation in Item 3, even if it doesn't appear to be a pattern.
• A business advisor can help you search for any undisclosed litigation or complaints through online searches and franchisee interviews.
• Discussing the franchisor's relationship with its franchisees with current and former operators can provide context beyond the FDD.