Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support and training to all franchisees. It is important to assess whether a franchisor's support infrastructure is keeping pace with its unit expansion.

Potential Mitigations

• Your accountant should review the franchisor's financials in Item 21 to assess if they have the resources to support their stated growth plans.
• Engaging a business advisor to question the franchisor about their capacity and plans for scaling support infrastructure can be beneficial.
• Inquiring with existing franchisees about the current quality and responsiveness of franchisor support is a valuable due diligence step.

Explanation

OMEX INTERNATIONAL, INC. (OMEX) and its affiliate, Task Masters, Inc., have been in business since the 1970s and 80s, and OMEX has offered franchises since 1991. The management team has extensive experience with the company. Therefore, this is not a new or unproven system. However, its recent lack of net growth, as shown in Item 20, presents a different set of risks regarding system maturation.

Potential Mitigations

• It is important to review the franchisor's long history and management experience with a business advisor to understand its evolution.
• Speaking with long-term franchisees about their experience with the system's development over time can provide valuable insight.
• Your accountant should carefully review the financial statements of this mature system for signs of stability or stagnation.

Explanation

The commercial cleaning industry is well-established and not typically considered a fad. OMEX provides professional cleaning services to commercial customers, a business with a consistent demand base. The risk of the entire business concept becoming obsolete due to shifting consumer trends appears low.

Potential Mitigations

• Assessing the local market demand for commercial cleaning services with a business advisor is a prudent step.
• Your attorney can help you understand any long-term obligations in the Franchise Agreement that would persist even if market demand were to change.
• Discussing the stability of the commercial cleaning industry with your financial advisor can help in long-term planning.

Explanation

This risk was not identified in the FDD package. FDD Item 2 indicates that the key executives of OMEX have extensive, long-term experience with both the company and its affiliate, Task Masters, Inc., dating back to the 1980s and 1990s. The management team appears to be stable and deeply experienced in this specific business.

Potential Mitigations

• A business advisor can help you assess the management team's background and how their long tenure might affect the company's culture and adaptability.
• It's still valuable to speak with existing franchisees to get their perspective on the management team's effectiveness and support.
• Even with experienced management, having your attorney review the contractual obligations for support in Item 11 is crucial.

Explanation

This risk was not identified in the FDD package. FDD Item 1 indicates OMEX is a privately held corporation and does not disclose ownership by a private equity firm. The management and ownership appear to be stable and long-term, rather than being driven by a PE fund's typical investment timeline.

Potential Mitigations

• It is always prudent to ask the franchisor about any potential plans for a future sale of the company.
• Your attorney should review the assignment clause in the Franchise Agreement to understand your rights if the system is sold in the future.
• A business advisor can help you research the ownership structure of any company you consider investing in.

Explanation

This risk was not identified in the FDD package. OMEX states in Item 1 that it has no predecessors. The company was incorporated in 1990 and has been offering franchises since 1991, and its affiliate Task Masters, Inc. has been operating since 1979. The history appears to be contained within these entities.

Potential Mitigations

• A franchise attorney can confirm the corporate history and verify the accuracy of the 'no predecessors' statement.
• It is good practice for a business advisor to help you research the history of the company and its affiliates.
• You should still review Items 3 and 4 for any litigation or bankruptcy history related to the disclosed entities and their management.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD states, 'No litigation is required to be disclosed in this Disclosure Document.' This indicates there have been no recent, material legal actions involving the franchisor that meet the specific disclosure requirements, which is a positive sign. However, this does not guarantee the absence of all disputes.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the technical requirements for disclosure in Item 3.
• Asking current and former franchisees about their experiences and any disputes they may be aware of is a crucial due diligence step.
• A business advisor can help you interpret the significance of a clean litigation history in the context of the overall franchise system.