Explanation

This risk was not identified in the FDD package. Rapid system growth can sometimes strain a franchisor's resources, potentially leading to a decline in the quality of support, training, and site selection assistance for new franchisees. It is a factor to consider, especially with younger franchise systems.

Potential Mitigations

• Your business advisor can help you analyze the franchisor's growth rate in Item 20 against its available resources detailed in Item 21.
• Speaking with both new and established franchisees can provide insight into whether support levels have remained consistent during periods of growth.
• Seeking legal counsel to understand the franchisor's contractual support obligations is advisable.

Explanation

This risk was not identified. Moran has been franchising since 1970 and has a long operational history with multiple brands. However, for any new or emerging franchise system, there are inherent risks associated with an unproven business model, limited brand recognition, and potentially underdeveloped support systems. This can increase the uncertainty and challenges for early franchisees.

Potential Mitigations

• A thorough review of the management team's experience in both the specific industry and in franchising is a crucial step for your business advisor.
• When evaluating a new system, it is vital that your accountant scrutinize the franchisor's capitalization and financial stability.
• Speaking with the very first franchisees of a new system can provide invaluable, firsthand insight into the concept's viability.

Explanation

This risk was not identified. The automotive repair industry is a long-established and essential service sector, not typically considered a fad. A fad business is one based on a short-lived trend, which creates a high risk of failure once public interest wanes. Even if the trend ends, your long-term contractual obligations to the franchisor would likely remain.

Potential Mitigations

• Your business advisor can help you conduct independent market research to assess the long-term consumer demand for the franchise's products or services.
• Evaluating the franchisor’s plans for innovation and adaptation to changing market conditions is a wise precaution.
• Consider the business's resilience to economic shifts and its core value proposition beyond current trends with your financial advisor.

Explanation

This risk was not identified. The executives detailed in Item 2 appear to have extensive experience, with most having over 15-35 years in the automotive and/or franchise industry. Inexperienced management can be a significant risk, as it may lead to flawed strategies, weak support systems, and a general lack of understanding of the franchisee-franchisor relationship, which could jeopardize your investment.

Potential Mitigations

• A business advisor can help you thoroughly vet the background of each member of the franchisor's management team.
• Speaking with current franchisees about their direct experiences with the management team can provide valuable insight into their competence and supportiveness.
• Your attorney should confirm that the experience listed in Item 2 aligns with the support obligations promised in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. Private equity ownership can introduce a focus on short-term financial returns over the long-term health of the brand and its franchisees. This might lead to increased fees, reduced support quality, or pressure to use specific vendors to maximize profit before the firm sells the system, which they have the right to do.

Potential Mitigations

• Your business advisor should research the track record of any private equity firm involved with other franchise systems they have owned.
• Speaking with franchisees who have operated under the PE firm's ownership can reveal changes in culture, support, and costs.
• It is important to have your attorney review the franchisor's rights to sell or assign the franchise system.

Explanation

This risk was not identified. The FDD clearly identifies Moran as the franchisor and provides its financial statements. When a franchisor is a subsidiary of a larger parent company, it is important that the parent's financials are also disclosed if they guarantee the franchisor's obligations. Failure to do so can obscure the true financial backing and stability of the system you are investing in.

Potential Mitigations

• Your attorney should verify the full corporate structure and identify any parent companies or guarantors.
• If a parent company exists and guarantees performance, it is crucial that your accountant review its financial statements for stability.
• Understanding any financial or operational dependencies between the franchisor and a parent entity is a key piece of due diligence for your business advisor.

Explanation

Moran discloses it has operated under other trade names and acquired other franchise systems, such as “Multistate Transmissions” and “Dr. Nick's Transmissions.” While disclosed, this history means the system's performance and data may be a composite of different brands. Inadequate disclosure of a predecessor's history, including past litigation or franchisee failures, could obscure inherited problems within the system.

Potential Mitigations

• A careful review of the predecessor history detailed in Item 1 with your attorney is important to understand the brand's lineage.
• It can be beneficial to have your business advisor research the business reputation and historical performance of any predecessor companies.
• Asking long-term franchisees about their experiences under previous brand names or ownership can provide valuable context.

Explanation

This risk was not identified in the FDD package. Moran discloses one recent lawsuit against a franchisee for royalty collection, which is not unusual. However, a pattern of litigation, especially cases initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may indicate systemic problems, a flawed business model, or a contentious relationship between the franchisor and its franchisees.

Potential Mitigations

• Your attorney should carefully review the nature, allegations, and outcomes of any disclosed litigation in Item 3.
• Even a single serious claim of fraud should be discussed in-depth with your legal counsel.
• A business advisor can help you put the number of lawsuits in context with the overall size and age of the franchise system.