Explanation

This risk was not identified in the FDD package. Item 20 data shows no franchise terminations, non-renewals, or cessations of operations for other reasons over the last three fiscal years, which is a positive indicator of system stability. High franchisee turnover can be a major red flag, suggesting potential issues with profitability, franchisor support, or the overall business model. A stable system is generally a better indicator of a healthy franchise opportunity.

Potential Mitigations

• You should still discuss the stability shown in Item 20 with former and current franchisees to confirm the data reflects reality.
• An analysis of the Item 20 tables with your accountant can help you understand the system's growth and stability trends over time.
• Your attorney can help you understand the definitions used by the franchisor in Item 20 to ensure they are not misleading.

Explanation

This risk was not identified in the FDD package. Item 20 data shows the system has grown steadily from 5 to 14 franchised outlets over the past three years. This rate of growth does not appear to be so rapid as to risk outstripping the franchisor's ability to provide adequate support. Uncontrolled, rapid growth can be a significant risk, as franchisor resources for training, site selection, and ongoing support can become diluted, negatively impacting all franchisees.

Potential Mitigations

• It is still wise to ask current franchisees about the quality and timeliness of the support they receive from the franchisor.
• A review of the franchisor's financial statements in Item 21 with your accountant can help assess if they have the resources to support current and future growth.
• Your business advisor can help you evaluate if the franchisor's support infrastructure seems adequate for its size.

Explanation

This risk was not identified in the FDD package. NP Franchise Group, LLC (NextCar) and its affiliates have been involved in vehicle rental franchising since 1996 with other brands, and began offering NextCar franchises in 2015. The system is established and has an operational history. Investing in a new or unproven system carries higher risks, as the business model may not be validated and the franchisor may lack the experience to provide effective support.

Potential Mitigations

• You should still review the management team's experience in Item 2 with your business advisor.
• Discussing the maturity and effectiveness of the business systems with long-standing franchisees is a valuable due diligence step.
• Your attorney can help review the entire FDD for any signs of an unproven or unstable operating model.

Explanation

This risk was not identified in the FDD package. The vehicle rental industry is a long-established and fundamental part of the travel and transportation sectors, not a temporary trend. A fad business model presents a significant risk because its appeal may be short-lived, potentially leading to a sharp decline in customer demand and revenue after the initial excitement fades, leaving you with a long-term contractual obligation for a business with no market.

Potential Mitigations

• Even in an established industry, evaluating the specific business model's long-term viability and competitive advantages with a business advisor is prudent.
• Assess the franchisor's plans for innovation and adaptation to industry changes like electric vehicles or mobility services.
• An accountant can help you model the financial resilience of the business to economic downturns or shifts in consumer behavior.

Explanation

The management team detailed in Item 2 possesses extensive experience in the vehicle rental industry. However, Item 4 discloses that two current directors were also officers of parent companies that filed for Chapter 11 bankruptcy in 2017. While their experience is not in question, this history with bankrupt entities introduces a level of risk concerning past business judgments and management during financial distress, warranting caution.

Potential Mitigations

• A frank discussion with the franchisor about the circumstances of the prior bankruptcies and lessons learned is warranted.
• Your attorney should investigate the details of the prior bankruptcy filings for any relevant information.
• Discussing the current management team's effectiveness and support with existing franchisees is a critical due diligence step.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is part of a complex structure of affiliated private companies, but does not state it is owned by a private equity firm. Private equity ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, potentially leading to increased fees, reduced support, or a quick resale of the franchise brand.

Potential Mitigations

• It remains important to understand the ownership structure and any recent changes by reviewing Item 1 with your attorney.
• Asking current franchisees about any recent changes in management philosophy or financial priorities can provide valuable insight.
• A business advisor can help you research the ownership group for any history related to franchising.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the franchisor's parent and affiliate structure. Audited financial statements for the franchisor entity, NP Franchise Group, LLC, are provided in Item 21. As no parent company guarantee of the franchisor's obligations is mentioned, providing parent company financials is not strictly required. Therefore, there does not appear to be a failure to disclose a required parent company.

Potential Mitigations

• Your accountant should still review the provided financials and the related party transaction notes to understand the financial interplay between the companies.
• Your attorney can confirm if, based on the franchisor's structure, additional financial disclosures should have been provided under franchise law.
• Discussing the parent company's role and influence with current franchisees can provide practical context.

Explanation

This risk was not identified in the FDD package. Item 3 explicitly states, 'No litigation is required to be disclosed in this Item.' This indicates the absence of current or recent material litigation involving the franchisor, its predecessors, or management that would require disclosure under franchise law. A clean litigation history is a positive factor, as a pattern of franchisee lawsuits can signal systemic problems.

Potential Mitigations

• It is still prudent to conduct independent online searches for any news or discussions regarding legal disputes involving the franchisor.
• Your attorney can provide context on what types of litigation are considered 'material' for disclosure purposes.
• Asking current and former franchisees about their experiences with disputes, whether they resulted in litigation or not, provides valuable insight.