Explanation

High franchisee turnover can be a major warning sign of systemic problems. This risk was not identified in the FDD package, as the data in Item 20 does not show a high rate of terminations, non-renewals, or other cessations of business. The system appears relatively stable in this regard over the last three years.

Potential Mitigations

• It is still prudent to ask current and former franchisees about their experiences and satisfaction with the system during your due diligence calls.
• Your business advisor can help you analyze the Item 20 tables to calculate the annual turnover rate for comparison with industry averages.
• Discussing the reasons for the few departures that did occur with the franchisor can provide additional insight.

Explanation

This risk was not identified. Rapid expansion can strain a franchisor's ability to provide adequate support to new and existing franchisees. Based on the outlet data in Item 20, Nautical Boat Clubs, LLC (Nautical) has been growing at a steady but not excessively rapid pace, which suggests that its support infrastructure is less likely to be overwhelmed.

Potential Mitigations

• During your due diligence calls, asking franchisees who opened at different times about the quality and timeliness of support they received can be insightful.
• A discussion with your business advisor can help assess if the franchisor's support team, as described in Item 2, is adequately sized for the current system.
• Your accountant can review the franchisor's investment in support infrastructure relative to its growth.

Explanation

This risk was not identified. Nautical began offering franchises in June 2012, according to Item 1. With over a decade of franchising experience, the system is established and not a startup. This suggests they have developed operational systems, support structures, and brand recognition, reducing the risks associated with an unproven concept.

Potential Mitigations

• Engaging a business advisor to review the franchisor's history and evolution of its systems can provide valuable context.
• It is still wise to ask long-tenured franchisees about how the franchisor's support and systems have evolved over the years.
• Your attorney can review the complexity of the predecessor history mentioned in Item 1 to ensure there are no lingering issues.

Explanation

This risk was not identified. The members-only boat club concept is a recognized segment of the recreational marine industry and is not based on a short-lived trend. While market conditions can change, the business model itself caters to a durable consumer interest in boating without the burdens of ownership. This suggests a lower risk of the business being a fad.

Potential Mitigations

• A business advisor can help you research the long-term trends in the boat club and shared-access recreational vehicle industries.
• Discussing local market demand for this type of service with marina operators and other local business owners can provide valuable insights.
• Asking the franchisor about their strategies for long-term market relevance and adaptation is a prudent step.

Explanation

This risk was not identified. The executive biographies in Item 2 indicate that the management team has significant, long-term experience with the Nautical brand and in the industry. For example, the Manager has been with the company since its formation in 2012. This level of experience suggests the leadership understands the business model and the needs of franchisees.

Potential Mitigations

• It is still beneficial to ask current franchisees about their direct experiences with the management team's competence and accessibility.
• A business advisor can help you assess the depth and breadth of the management team's skills as presented in Item 2.
• Inquiring about management's vision for the future of the company can provide insight into their strategic thinking.

Explanation

This risk was not identified. There is no disclosure in Item 1 indicating that the franchisor is owned or controlled by a private equity firm. The ownership structure appears to be held by individuals involved in the business, which can sometimes lead to a focus more on long-term brand health rather than short-term investor returns.

Potential Mitigations

• During your research, a general online search for the franchisor and its parent company can sometimes reveal ownership details.
• Your attorney can help you verify the corporate structure and ownership of the franchisor and its parent entity.
• Asking the franchisor directly about their long-term ownership goals is a reasonable due diligence question.

Explanation

Item 1 discloses a multi-layered history involving several predecessor entities. While the document does not reveal any negative history such as bankruptcy or significant litigation associated with these predecessors, the complexity itself can sometimes obscure past issues. However, without disclosed negative information, this risk appears low.

Potential Mitigations

• Your attorney should carefully review the transfer of assets and brand rights from all predecessor entities to the current franchisor.
• It is still worthwhile to ask long-tenured franchisees, if any exist from the predecessor eras, about the system's history.
• A business advisor can help you conduct public records searches on the predecessor companies for any undisclosed issues.

Explanation

This risk was not identified. Item 3 of the FDD explicitly states, "No litigation is required to be disclosed in this Item." This indicates that the franchisor, its predecessors, and key personnel have not been involved in the types of material litigation that require disclosure under federal franchise law. This is a positive indicator of the company's legal history.

Potential Mitigations

• While not required, your attorney can still perform an independent public records search for litigation as part of comprehensive due diligence.
• During franchisee calls, you can still ask if they are aware of any disputes, even if they haven't resulted in formal litigation.
• Maintaining a positive and communicative relationship with the franchisor can help prevent future disputes.