Explanation

This risk was not identified in the FDD Package. The franchisor, Mr. Sandless Franchise LLC, was formed in 2005 and began franchising in 2006, indicating a long operational history. An unproven system can be risky because its business model, brand recognition, and support structures are not yet well-established, potentially leading to higher failure rates for new franchisees.

Potential Mitigations

• When evaluating any franchise, it's wise to have your business advisor assess the franchisor's history and the maturity of its systems.
• An attorney can help you understand the protections available when dealing with newer versus established franchise systems.
• Reviewing the business experience of the management team in Item 2 with your advisor is always a crucial step.

Explanation

This risk was not identified in the FDD Package. The floor refinishing industry is well-established, and the franchisor has been operating for nearly two decades, suggesting the business is not based on a short-term trend. Investing in a fad business is risky because consumer interest can decline rapidly, leaving you with a long-term contractual obligation for a business with waning demand.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any industry you consider entering.
• It is important to evaluate a franchisor's commitment to innovation and adapting its business model for future relevance.
• Consulting with your accountant on the long-term financial viability of a business concept is a key part of due diligence.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the key management personnel, including the President, have been with the company since its inception in 2005. Management lacking specific experience in franchising or the relevant industry can be a significant risk, as they may be unable to provide effective support, training, or strategic direction for the franchise system.

Potential Mitigations

• Your business advisor can help you evaluate the resumes and track records of the key executives listed in Item 2.
• When speaking with current franchisees, it is always a good practice to inquire about their direct experiences with the management team.
• An attorney can help you understand what contractual commitments for support are tied to the current management team.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a privately held limited liability company and does not disclose ownership by a private equity firm. When a PE firm owns a franchisor, there can be a risk that short-term financial goals are prioritized over the long-term health of the franchise system and the profitability of individual franchisees.

Potential Mitigations

• Your attorney can help you investigate the ownership structure of any franchisor to understand who ultimately makes decisions.
• If a franchisor is owned by a PE firm, a business advisor can help you research that firm's track record with other franchise brands.
• Engaging with current franchisees about any recent changes in franchisor strategy or support levels is always recommended.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD clearly states that the franchisor has no parent company. When a franchisor is a subsidiary, the financial health and influence of its parent company can be material. Failure to disclose a parent company or provide its financial statements when required can obscure significant risks to a prospective franchisee.

Potential Mitigations

• Your attorney can help you verify a company's corporate structure and identify any parent or affiliate relationships.
• If a parent company exists and provides guarantees, an accountant should review its financial statements for stability.
• Understanding the full corporate structure is a key piece of due diligence that a business advisor can assist with.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessors. Hidden or incomplete information about a predecessor's history, such as past litigation, bankruptcy, or high franchisee failure rates, can prevent a prospective franchisee from understanding the true historical challenges and inherited issues of the franchise system.

Potential Mitigations

• Having your attorney review Item 1 is crucial to understanding the franchisor's history and lineage.
• If a predecessor exists, independent research into its business history can be a valuable step in your due diligence.
• Discussions with long-term franchisees who operated under a predecessor can provide important context.

Explanation

This risk was not identified in the FDD Package. Item 3 states that "No litigation information is required to be disclosed in this Item." A pattern of litigation, especially lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems with the franchisor's sales practices, support obligations, or overall business model.

Potential Mitigations

• It is always a good practice to have your attorney carefully review the disclosures in Item 3 for any concerning patterns or outcomes.
• Independent searches for litigation involving the franchisor or its principals can be a useful due diligence step.
• Asking current and former franchisees about their experiences with disputes within the system can provide valuable, real-world context.