Explanation

This risk was not identified in the FDD package. The franchisor's audited financial statements in Exhibit B appear healthy, showing consistent profitability and positive net worth over the past three fiscal years. Strong financials suggest the franchisor has the resources to support its obligations and invest in the system, which is a positive indicator for prospective franchisees.

Potential Mitigations

• It is still advisable for your accountant to conduct a thorough review of the franchisor's financial statements, including all footnotes and cash flow statements.
• Discuss the franchisor's financial health and capitalization with your financial advisor to understand their ability to weather economic downturns.
• In any franchise opportunity, seeking legal counsel to understand provisions related to franchisor bankruptcy or insolvency is a prudent step.

Explanation

This risk was not identified. Item 20 data indicates that the franchise system's size has remained very stable over the past three years, showing slow to flat growth. This suggests the franchisor is not expanding at a rate that is likely to outpace its ability to provide franchisee support. A mature, stable system can be a positive sign of a sustainable business model.

Potential Mitigations

• It is still wise to ask current franchisees about the quality and timeliness of the support they receive from the corporate office.
• A discussion with your business advisor can help you evaluate the franchisor's infrastructure and its capacity for supporting the existing system.
• Your accountant can review the franchisor's financials to confirm they are reinvesting adequately in support services for their franchisees.

Explanation

This risk was not identified. Item 1 indicates the franchisor has been operating and franchising since 1995. This long history suggests a mature, well-established business model and a deep level of experience in managing a franchise system, which is generally a positive factor for prospective franchisees.

Potential Mitigations

• A review of the company's history and any significant changes over time with your business advisor is still a valuable exercise.
• Asking long-term franchisees about the evolution of the system and the quality of support over the years can provide important insights.
• Your attorney can help you understand any disclosed information about predecessors or corporate reorganizations.

Explanation

This risk was not identified. The franchise offers commercial janitorial services, a long-established and essential business-to-business service. This industry is characterized by consistent demand and is not dependent on fleeting trends, suggesting a stable market for your potential business.

Potential Mitigations

• Even in a stable industry, it is important to conduct local market research with a business advisor to assess competition and demand in your specific area.
• Your accountant can help you model the financial performance of this type of service business.
• Discussing the long-term outlook for the commercial cleaning industry with current franchisees can provide valuable perspective.

Explanation

This risk was not identified. The executive team described in Item 2 possesses significant experience in franchising, business management, and roles directly relevant to the company's operations. The presence of an experienced management team is a positive indicator for the quality of leadership and strategic direction you can expect from the franchisor.

Potential Mitigations

• Engaging a business advisor to help you evaluate the backgrounds of the key executives is still a prudent due diligence step.
• When speaking with current franchisees, you should inquire about their perception of the management team's competence and accessibility.
• Your attorney can help you understand the roles and responsibilities of the management team as outlined in the disclosure documents.

Explanation

This risk was not identified. Item 1 provides a clear and detailed description of the franchisor's corporate structure, including its parent and affiliated companies. The necessary financial statements for the franchisor entity are also provided. This transparency is a positive sign and allows for a more complete assessment of the organization.

Potential Mitigations

• Have your attorney review the corporate structure and any guarantees or obligations between the franchisor and its parent company.
• Your accountant should confirm that all required financial statements have been provided and meet regulatory standards.
• Discussing the roles of any affiliated companies with the franchisor can provide additional clarity on the business relationship.

Explanation

This risk was not identified in the FDD. Item 1 describes the franchisor's history and identifies a predecessor entity in the context of a corporate reorganization. However, the FDD does not disclose any negative history, such as bankruptcy or significant litigation associated with this predecessor, that would suggest inherited systemic problems.

Potential Mitigations

• Your attorney should still review all disclosures related to predecessors in Items 1, 3, and 4 to ensure complete transparency.
• When speaking with long-tenured franchisees, asking about their experience before and after any corporate reorganization can offer valuable insights.
• A business advisor can assist you in researching the history of the brand and any predecessor companies.

Explanation

This risk was not identified. Item 3 discloses only one recent lawsuit, which was initiated by the franchisor to enforce its non-compete agreement. The FDD does not show a history or pattern of litigation filed by franchisees alleging fraud, misrepresentation, or other systemic issues, which is a positive indicator regarding the franchisor's relationship with its operators.

Potential Mitigations

• It is still prudent to have your attorney review the details of any disclosed litigation to understand its potential implications.
• Inquiring with current franchisees about the franchisor's general approach to dispute resolution can provide useful context.
• A business advisor can help you research public records for any litigation that may not have required disclosure.