Explanation

This risk was not identified. The audited financial statements for OE Franchising, LLC (OE) show a transition from net losses in 2022 and 2023 to a net income of over $623,000 in 2024. The company has positive and growing member's equity and an acceptable current ratio. While a significant portion of revenue comes from initial franchise fees, recurring royalty revenue is growing steadily, suggesting improving financial stability and an ability to support franchisees.

Potential Mitigations

• Your accountant should review the franchisor's complete audited financial statements, including all notes, to form an independent opinion on financial stability.
• Engaging a business advisor to discuss the franchisor's business model and its reliance on franchise fees versus ongoing royalties is recommended.
• Ask your attorney about the implications of any financial performance bonds or escrow requirements mentioned in the state addenda.

Explanation

This risk was not identified. The data in Item 20's tables indicates a relatively stable and growing franchise system. Over the last two years (2023-2024), there were only four terminations and zero non-renewals or franchisor reacquisitions out of a system that grew from 78 to 84 franchised units. This represents a low annual turnover rate, which does not suggest widespread franchisee distress or systemic problems within the franchise network.

Potential Mitigations

• Speaking with current and former franchisees listed in Item 20 is a crucial step your business advisor can help you prepare for.
• Having an accountant help you calculate the precise turnover rates for terminations, transfers, and cessations over the past three years provides valuable context.
• You should ask the franchisor about the specific reasons for the few terminations that did occur, with guidance from your attorney.

Explanation

This risk was not identified. While the system is growing, adding 20 net franchised units over three years, the pace does not appear to be outpacing the franchisor's resources. The franchisor's financials in Item 21 show a significant increase in revenue and a shift to profitability, suggesting they have been investing in their infrastructure. The low turnover rate in Item 20 also indicates that franchisee support has likely kept pace with the system's growth.

Potential Mitigations

• It is wise to ask current franchisees about the quality and timeliness of support they receive from the corporate office.
• A discussion with your business advisor can help you assess if the franchisor's support staff and systems are adequate for the current system size.
• Your accountant can analyze the franchisor's spending on support-related activities as disclosed in the financial statements.

Explanation

This risk was not identified. Although the current franchisor entity, OE Franchising, LLC, was formed in 2022, it acquired a long-standing system. The Office Evolution brand has been in operation since 2003. Item 2 shows that the key executives have extensive experience within the United Franchise Group's various brands, indicating deep experience in franchising, even if their tenure with this specific brand is more recent. The system has a substantial number of operating units.

Potential Mitigations

• Engaging a business advisor to research the history of the Office Evolution brand and the track record of United Franchise Group is beneficial.
• It is important to speak with long-tenured franchisees to understand the transition from the predecessor and the performance of the current management.
• Your attorney can help you understand the implications of the franchisor being a relatively new legal entity that acquired an established system.

Explanation

This risk was not identified. The shared office and coworking space industry has demonstrated sustained demand and is an established business sector, not a temporary fad. Office Evolution has been operating since 2003, indicating a history that predates recent coworking trends and suggests long-term market viability. The business model serves a fundamental need for flexible workspace for small businesses and professionals, which is not typically associated with a short-lived trend.

Potential Mitigations

• Working with a business advisor to research the long-term trends and competitive landscape of the flexible workspace industry in your local market is prudent.
• You should discuss the franchisor's strategies for innovation and adaptation to evolving work habits with their management team.
• It is helpful to ask current franchisees about the stability of their client base and the demand for services over time.

Explanation

This risk was not identified. While the current franchisor entity is recent (2022), it is part of the United Franchise Group (UFG), a large, multi-brand franchise organization with decades of experience. Item 2 lists executives with extensive careers in franchising across various UFG brands, including direct experience in the coworking sector with affiliate Venture X. This indicates access to a deep pool of franchising knowledge and experienced leadership, mitigating the risks associated with a new management team.

Potential Mitigations

• A review of the backgrounds of the key executives listed in Item 2 with your business advisor can provide confidence in their capabilities.
• It is beneficial to ask current franchisees about their direct experiences with the management team's support and strategic direction.
• Understanding the role and influence of the parent company, United Franchise Group, on operations should be discussed with your attorney.

Explanation

This risk was not identified. Item 1 clearly discloses the franchisor's affiliation with United Franchise Group and lists numerous other affiliated franchise companies. Item 21 contains the audited financial statements for the franchisor, OE Franchising, LLC, as required. There is no indication of a parent company whose financials would be required for disclosure but are being withheld. The structure appears to be a group of affiliated entities rather than a direct parent-subsidiary relationship requiring parent financials.

Potential Mitigations

• Your accountant should confirm that the provided financial statements are for the correct legal entity offering you the franchise.
• It is prudent for your attorney to review the corporate structure described in Item 1 to ensure there are no hidden parent entities.
• You can ask the franchisor to clarify the legal relationship between itself and United Franchise Group for full transparency.

Explanation

This risk was not identified. Item 1 clearly identifies the predecessor company and the date of acquisition. Item 3, which details litigation history, includes actions involving affiliate companies that share a common history with the current franchisor's leadership, providing a transparent, though concerning, look at the broader organization's legal background. There is no indication that negative history related to the predecessor has been obscured or omitted from the document.

Potential Mitigations

• A thorough review of all disclosures related to the predecessor and affiliated companies in Items 1 and 3 with your attorney is recommended.
• It is useful to ask long-tenured franchisees about their experiences under the previous ownership and the transition to the new franchisor.
• Your business advisor can assist in researching the public record of the predecessor company for any additional relevant information.