Explanation

This risk was not identified in the FDD package. As a new franchise system that began operating in 2023, there is no history of franchisee terminations, non-renewals, or other cessations to analyze. High turnover is generally a significant red flag in established systems, as it can indicate franchisee dissatisfaction, lack of profitability, or poor franchisor support. The absence of this data is a result of the system's newness.

Potential Mitigations

• Engaging a business advisor to monitor future Item 20 disclosures for signs of increasing turnover as the system grows would be a prudent step.
• Your attorney can help you frame questions for the earliest franchisees about their satisfaction and future intentions.
• Your accountant should help you model potential risks associated with being one of the first franchisees in a new system.

Explanation

This risk was not identified in the FDD package. The business of providing outpatient mental health and counseling services is a well-established sector within the healthcare industry. It is not based on a fleeting trend or novelty. Therefore, the long-term market demand for the core services you will offer is considered stable and not characteristic of a fad business.

Potential Mitigations

• Your business advisor can help you analyze the specific competitive landscape for mental health services in your local market.
• It is still important to have your accountant help you develop a business plan that accounts for local market factors and competition.
• Consult with your attorney to understand any local regulations that could impact your business operations.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a privately held limited liability company. There is no disclosure of ownership by a private equity firm or other institutional investment group. Decision-making appears to reside with the founders and management team listed in Item 2, rather than an outside financial firm with potentially different priorities.

Potential Mitigations

• Your attorney can confirm the corporate structure and ownership during your due diligence process.
• It is wise to ask the franchisor if they have any plans to seek outside investment that could change the ownership structure in the near future.
• Your business advisor can help you understand the pros and cons of different franchisor ownership structures.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose the existence of any parent company. The franchisor, Nora Mental Health, LLC, appears to be the primary and sole entity responsible for the franchise system. Therefore, the risk of unassessed financial instability or control from an undisclosed parent entity is not present.

Potential Mitigations

• Your attorney can perform a corporate records search to confirm that there are no undisclosed parent or holding companies.
• It is still critical for your accountant to analyze the financial statements of the disclosed franchisor entity, as its health is paramount.
• A business advisor can help you evaluate the overall corporate structure and its implications for you as a franchisee.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD clearly states, "We do not have any parent or predecessor companies." This means the current franchisor is the original entity for this franchise system, and there is no prior corporate history under a different name or owner that you need to investigate for hidden issues like past litigation or franchisee failures.

Potential Mitigations

• Your attorney can verify the franchisor's corporate history as part of the due diligence process.
• Focus your due diligence efforts on the current management team's experience and the system's present condition, as advised by your business advisor.
• You should still ask early franchisees about the history of the company-owned operations that existed before franchising began.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. For a very new franchisor, this is not unusual, but it is a positive factor that there are no pending lawsuits from franchisees or regulators alleging issues like fraud, misrepresentation, or breach of contract. A pattern of such litigation would be a major red flag.

Potential Mitigations

• Your attorney can conduct a public records search to independently verify if any litigation exists that may not have been disclosed.
• It's good practice to ask the franchisor if they are aware of any pending disputes that have not yet resulted in formal litigation.
• You should ask early franchisees if they have had any significant disputes with the franchisor.