Explanation

The risk of rapid system growth, which could strain the franchisor's support systems, was not identified. Item 20 data shows a net decrease in franchised outlets in 2023 followed by modest growth in 2024, which does not suggest excessively rapid expansion. However, it's still important to verify that a franchisor's support capabilities can adequately serve all franchisees, both new and existing, to ensure you receive the assistance you are paying for.

Potential Mitigations

• Your business advisor can help you assess whether the franchisor's current support infrastructure is adequate for its size.
• Asking existing franchisees about the quality and timeliness of support they currently receive is a valuable due diligence step.
• A review of the franchisor's financial statements with your accountant can help determine if they are investing in support systems.

Explanation

Novus has operated and offered franchises since its formation in 2017, acquiring the system from a predecessor with a longer history. The system is not new or unproven. However, understanding the challenges of any franchise system, regardless of age, is important. A prospective franchisee should always evaluate the current market relevance of the business model and the health of the franchisee network to gauge the ongoing viability and potential risks of their investment.

Potential Mitigations

• A business advisor can help you investigate the brand's history and its current competitive position in the marketplace.
• It is wise to speak with long-term franchisees to understand how the system has evolved and adapted over time.
• Your accountant should review financial trends over the past three years to assess the system's current health.

Explanation

This risk was not identified. The automotive glass repair and replacement industry is well-established and demonstrates long-term consumer demand. This is not a business model based on a new or fleeting trend. Assessing the long-term viability of any business is a crucial step. A franchisee should consider if the products or services meet a consistent consumer need rather than being dependent on a short-lived fad, as franchise agreements are long-term commitments.

Potential Mitigations

• A business advisor can help you research the stability and long-term trends of the automotive repair industry in your local market.
• Asking long-tenured franchisees about their historical business cycles can provide insight into the model's sustainability.
• Your financial advisor should be consulted to evaluate the business model's resilience to various economic conditions.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives of Novus have significant experience in the automotive services and franchising industries, often with long tenures at Novus or its affiliated companies. Inexperienced management can pose a risk, as it may lead to poor strategic decisions or inadequate franchisee support. It is generally beneficial when a franchisor's leadership team has a demonstrated track record in both the specific industry and in managing a franchise system.

Potential Mitigations

• A business advisor can help you review the backgrounds of the key management personnel listed in Item 2.
• In discussions with current franchisees, you might inquire about their confidence in the current leadership team.
• Your attorney could help you research public information about the key executives for additional context on their professional history.

Explanation

This risk was not identified. Item 1 clearly discloses the parent companies, Mondofix USA LLC and Mondofix Inc. Furthermore, Item 21 and Exhibit A provide the necessary audited financial statements for the franchisor entity itself. Failure to disclose a parent company or provide its financials when it guarantees the franchisor's performance can hide significant risks, so it is a positive factor that these disclosures appear to be present and compliant.

Potential Mitigations

• Having your accountant review the provided financial statements for the franchisor entity is a crucial step.
• Your attorney can confirm that the disclosures regarding parent companies and affiliates in Item 1 appear complete.
• It is wise to ask the franchisor to explain the relationship and roles of each parent and affiliate company.

Explanation

The franchisor discloses its predecessors, Novus Franchising, Inc. (NFI) and TCG International Inc., and provides information on litigation involving NFI in Item 3. While the disclosure appears to be made, the existence of predecessor litigation regarding franchisee disputes still merits attention. It is important for you to understand the history of the system you are buying into, as past issues can sometimes carry over to the new ownership structure.

Potential Mitigations

• Your attorney should review the details of the predecessor litigation to understand the nature of past disputes.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable historical context.
• You should ask the current franchisor how they have addressed the issues that may have led to past disputes under prior ownership.

Explanation

This risk was not identified. Item 3 does not disclose a pattern of litigation against the current franchisor, Novus, alleging fraud, misrepresentation, or other franchise law violations. It does disclose two past lawsuits involving a predecessor, which is a lesser risk. A pattern of such litigation against the current franchisor would be a major red flag, potentially indicating systemic problems with its sales process or franchisee relations.

Potential Mitigations

• A franchise attorney can confirm that there is no other public litigation history that should have been disclosed.
• It is always prudent to conduct your own online searches for any news or franchisee complaints related to the franchisor.
• A discussion with your business advisor can help put any disclosed litigation into a broader industry context.