Explanation

This risk was not identified in the FDD package. An unproven system can present higher risks due to a lack of brand recognition, untested operational procedures, and potential instability. It is important to assess the franchisor's experience and financial backing to ensure they can support the system's growth and provide necessary assistance to franchisees.

Potential Mitigations

• A thorough review of the management team’s industry and franchising experience should be conducted with your business advisor.
• Speaking with the earliest franchisees about their experience provides insight into the system's development and support quality.
• Your accountant can assess the franchisor's capitalization and financial stability to determine its ability to support a new system.

Explanation

This risk was not identified in the FDD package. A business concept tied to a fleeting trend can be risky, as consumer interest may decline before you can achieve a return on your investment. Long-term viability depends on the business's ability to adapt and maintain relevance beyond the initial trend. The franchise agreement will still bind you even if the business becomes obsolete.

Potential Mitigations

• Assessing the long-term market demand for the product or service with a business advisor is a crucial step.
• Evaluating the franchisor’s stated plans for innovation and adaptation to market changes can provide insight into future viability.
• Consider working with your financial advisor to analyze the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package, as Item 1 does not indicate ownership by a private equity firm. When a PE firm owns a franchisor, there can be a focus on short-term returns, which may lead to cost-cutting on franchisee support, increased fees, or a quick sale of the system, potentially to the detriment of franchisees' long-term success.

Potential Mitigations

• Researching a private equity owner's history with other franchise systems can be done with help from a business advisor.
• Asking current franchisees about any changes in the system since a potential PE acquisition would be a key due diligence step.
• Your attorney can help assess the franchisor's right to sell or assign the franchise agreement and its implications for you.

Explanation

This risk was not identified in the FDD package, as NuSpine LLC does not appear to have a parent company. If a franchisor is a subsidiary of a larger parent, the parent's financial health can be critical. A lack of disclosure of the parent's financial statements, when required, could obscure financial instability or lack of backing for the franchise system, hiding significant risk from a potential franchisee.

Potential Mitigations

• Your attorney can help determine if a parent company exists and if its financial statements should have been disclosed.
• An accountant should review any parent company financials to assess the overall financial strength supporting the franchise system.
• Understanding the legal relationship and any guarantees between a parent and the franchisor is a task for your attorney.

Explanation

NuSpine LLC discloses a predecessor entity that operated from 2013 to 2019. While the FDD appears to disclose this relationship as required, any negative history associated with the predecessor, such as high franchisee failure rates or unresolved disputes, may not be fully detailed. This could obscure inherited systemic problems or a history of poor franchisee relations that might continue under the current ownership, impacting your investment.

Potential Mitigations

• Your attorney should carefully review all disclosures related to the predecessor in Items 1, 3, 4, and 20.
• Speaking with long-term franchisees who operated under the predecessor can provide invaluable insight into the system's history.
• A business advisor can help you research the predecessor's public track record and reputation.

Explanation

This risk was not identified in the FDD package, as Item 3 discloses no litigation. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a major red flag. It may suggest systemic problems with the franchisor's sales practices, disclosure integrity, or overall franchisee relations, indicating a higher risk of future disputes for you.

Potential Mitigations

• Your attorney should always review Item 3 litigation disclosures in detail.
• A business advisor can help you research public records for any litigation not disclosed in the FDD.
• Discussing any disclosed litigation with current and former franchisees is a key part of due diligence.