Explanation

The rate of franchisee terminations, non-renewals, and other cessations does not appear unusually high relative to the overall system size based on the last three years of data provided in Item 20. While any turnover warrants attention, the figures do not suggest a systemic problem at this time. High turnover can be a significant red flag indicating issues with profitability, franchisor support, or the business model itself.

Potential Mitigations

• It is still advisable to contact several former franchisees listed in Exhibit G to understand their specific reasons for leaving the system.
• A discussion with your business advisor can help put the disclosed turnover rates into the context of the broader industry.
• Your attorney can help you formulate questions for the franchisor regarding the circumstances of any past terminations or non-renewals.

Explanation

Item 20 data shows a pattern of steady franchise growth over the past three years. This pace does not appear excessively rapid to the point where it would inherently risk outstripping the franchisor's support capabilities. However, rapid growth in any system can strain resources. A key consideration is whether the support infrastructure, managed by Authority Brands Inc., is scaling effectively to meet the needs of all new and existing franchisees.

Potential Mitigations

• In discussions with current franchisees, you should inquire about their perception of the quality and timeliness of franchisor support.
• A business advisor can help you assess if the management team and support systems described in Items 2 and 11 are robust enough for the system's size.
• Have your accountant review the financials to see if the franchisor is reinvesting sufficiently to support system growth.

Explanation

The market for HVAC services is well-established and represents a fundamental need for homeowners and businesses, rather than a temporary trend. This suggests the business model has long-term sustainability and is not a fad. The franchisor's long history, dating back to 2003, further supports the concept's viability. The key risk is not the business being a fad, but its ability to remain competitive in a mature market.

Potential Mitigations

• A business advisor can help you analyze the long-term competitive landscape for HVAC services in your specific market.
• Discuss the brand's strategies for innovation and maintaining a competitive edge with current franchisees.
• Your accountant can assist in modeling the financial resilience of the business in a highly competitive industry.

Explanation

Item 2 shows that the key executives managing the franchise system have extensive experience in the franchise industry and with other large, established service brands. Many executives have been with the parent company, Authority Brands, or its predecessors for several years. This experienced management team may reduce risks associated with poor strategic decisions or inadequate support infrastructure. However, high-level executive turnover could still be a future risk.

Potential Mitigations

• A business advisor can help you review the backgrounds of the key personnel listed in Item 2 to confirm their relevant experience.
• When speaking with current franchisees, ask about their direct experiences and the quality of support from the management team.
• It may be beneficial to perform online searches for news or press releases regarding the franchisor's executive team.

Explanation

The FDD discloses the parent company, AB Assetco LLC, and includes its audited financial statements as well as a Guarantee of Performance. The FDD also discloses the management company, Authority Brands Inc., and includes its financial statements for disclosure purposes. This level of transparency appears to meet disclosure requirements, reducing the risk of a hidden, unstable parent company. However, the complexity of the structure, with different entities for contracting, guaranteeing, and managing, still warrants careful review.

Potential Mitigations

• Have your accountant thoroughly review the financials of all disclosed parent and affiliated entities.
• Your attorney should analyze the language of the Guarantee of Performance to ensure it provides meaningful protection.
• It is prudent to ask the franchisor to clarify the roles and responsibilities of each entity in the corporate structure.