Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows a stable or slightly shrinking system size in recent years, not rapid growth. Rapid expansion can strain a franchisor's ability to provide adequate support, but that does not appear to be a current risk with this system.

Potential Mitigations

• A business advisor can help evaluate the system's growth trajectory to ensure it is sustainable and supported by adequate infrastructure.
• It is wise to ask current franchisees about the quality and timeliness of support as the system grows.
• Your accountant can review the franchisor's financials to assess if they have the resources to support future growth plans.

Explanation

This risk was not identified in the FDD Package. OMEX International, Inc. was incorporated in 1990 and began franchising in 1991, indicating it is a long-established system. An unproven system carries higher risks related to brand recognition and operational support, but that is not the case here.

Potential Mitigations

• When evaluating any franchise, it is important to have your attorney review the franchisor's history and corporate background in Item 1.
• A business advisor can help you assess the maturity of the franchise system and its track record in the industry.
• Speaking with long-term franchisees can provide valuable insight into the evolution and stability of the brand over time.

Explanation

This risk was not identified in the FDD Package. The franchise operates in the commercial cleaning industry, which is an established business sector with consistent demand. Fad-based businesses carry the risk of declining consumer interest, but this business model is based on providing essential services to commercial customers.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term demand for any franchise's products or services.
• It's prudent to evaluate a business model's resilience to economic shifts and changing consumer trends with your financial advisor.
• Reviewing Item 1 for the franchisor's history helps in understanding the longevity of the business concept.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have extensive, long-term experience with the company and its affiliates, dating back to the 1980s and early 1990s. Inexperienced management can pose a significant risk to a franchise system's stability and quality of support.

Potential Mitigations

• A thorough review of the management team's background in Item 2 with your business advisor is a key part of due diligence.
• Inquiring with existing franchisees about their perception of the management team's competence and support is a valuable step.
• An attorney can help you understand the roles and responsibilities of the key personnel listed in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 and the notes to the financial statements indicate the company is privately held by its founder, not a private equity firm. PE ownership can sometimes lead to a focus on short-term returns over long-term franchisee health.

Potential Mitigations

• Your attorney should help you determine the ownership structure of the franchisor from Item 1 and financial statement notes.
• If a franchisor is owned by a private equity firm, a business advisor can help research the firm's track record with other franchise brands.
• Understanding the ownership can provide insight into the franchisor's long-term strategic priorities.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly states that OMEX has no parent company. It does, however, disclose its affiliates. In cases where a franchisor is a subsidiary, the parent's financial health can be critical, and its non-disclosure would be a concern.

Potential Mitigations

• An attorney can help verify the franchisor's corporate structure as disclosed in Item 1.
• If a parent company exists and guarantees the franchisor's obligations, an accountant should review the parent's financial statements.
• Understanding the full corporate structure is essential for a complete risk assessment.

Explanation

This risk was not identified in the FDD Package. Item 1 states that OMEX has no predecessors. A predecessor's history, including litigation or bankruptcy, can be a material fact, so its absence simplifies the risk analysis in this area.

Potential Mitigations

• Your attorney should always confirm the predecessor history disclosed in Item 1 of any FDD.
• If a predecessor exists, it is critical to research their history, including past litigation and franchisee turnover.
• A business advisor can help you understand how a predecessor's legacy might impact the current franchise system.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "No litigation is required to be disclosed in this Item." A pattern of litigation, particularly claims of fraud or misrepresentation brought by other franchisees, would be a significant red flag about the franchisor's practices and system health.

Potential Mitigations

• It is crucial for your franchise attorney to carefully review the litigation history in Item 3 of any FDD.
• A business advisor can help you understand the nature and potential implications of any disclosed lawsuits.
• Even with no disclosed litigation, speaking with former franchisees can sometimes uncover past disputes.