Explanation

This risk was not identified in the FDD package. A fad business is one based on a short-lived trend, which can lead to business failure when consumer interest fades. A prospective franchisee should assess whether a business concept has long-term market sustainability or if its appeal is tied to a current trend that might not last, as your contractual obligations will outlast the fad.

Potential Mitigations

• To better assess market sustainability, consider commissioning independent market research with the help of your business advisor.
• Discussing the franchisor's long-term strategy for product and service innovation with them can provide insight into their plans for staying relevant.
• Your financial advisor can help you evaluate the business model's resilience to shifts in consumer trends and economic conditions.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the franchisor's management team has experience in the medical and franchising industries. In some franchises, management may lack direct experience in franchising or in the specific industry, which can lead to challenges in providing effective support, training, and strategic direction. A thorough review of executive backgrounds in Item 2 is always a crucial step in franchisee due diligence.

Potential Mitigations

• A business advisor can help you assess the depth and relevance of the management team's experience as detailed in Item 2.
• Interviewing current franchisees about their direct experiences with the management team's competence and support is a valuable step.
• It is prudent to research the public professional histories of key executives to corroborate the information provided in the FDD.

Explanation

This risk was not identified in the FDD package, as OLC does not appear to be owned by a private equity firm. When a franchisor is owned by a PE firm, there can be a focus on short-term returns over the long-term health of the system. This might lead to increased fees, reduced support, or a quick sale of the franchise system, creating uncertainty for franchisees.

Potential Mitigations

• If a franchisor is PE-owned, having your business advisor research the firm's history with other franchise brands is crucial.
• It would be wise to ask franchisees who have been in the system before and after a PE acquisition about any changes they have experienced.
• Your attorney should analyze the Franchise Agreement for any terms that facilitate an easy sale of the system without franchisee input.

Explanation

This risk was not identified in the FDD package, as OLC does not appear to have an undisclosed parent company. Sometimes, a franchisor may be a subsidiary of a larger parent company. If that parent company's financial health is not disclosed, you may not have a complete picture of the overall financial stability and resources backing your franchise system, which is a significant risk.

Potential Mitigations

• Your attorney can perform corporate records searches to verify the franchisor's ownership structure and identify any parent companies.
• If a parent company exists and guarantees the franchisor's obligations, your accountant should insist on reviewing their financial statements.
• Understanding the full corporate structure is essential for assessing the true financial backing of the franchise; a business advisor can assist.

Explanation

This risk was not identified in the FDD package. OLC states in Item 1 that it has no predecessors. In some cases, a franchisor may have acquired the business from a previous entity. A failure to disclose or provide details about a predecessor's history, including any litigation or bankruptcy, could hide systemic issues that may still affect the franchise system you are joining.

Potential Mitigations

• If a predecessor exists, your attorney should carefully review their history as disclosed in Items 1, 3, and 4.
• Engaging a business advisor to research the public reputation and history of any predecessor entity is a prudent step.
• Questioning long-term franchisees about their experience under any previous ownership can provide valuable, unwritten context.

Explanation

This risk was not identified in the FDD package, as Item 3 discloses no material litigation. A pattern of lawsuits filed by franchisees against the franchisor alleging fraud or misrepresentation, or a high number of lawsuits filed by the franchisor against its franchisees, can be a major red flag. It may indicate systemic problems with the franchisor's business practices or an overly litigious culture.

Potential Mitigations

• Your attorney should always review the nature, allegations, and outcomes of any disclosed litigation in Item 3.
• If litigation is present, speaking with franchisees involved in those lawsuits can provide critical firsthand information.
• A business advisor can help you assess whether the amount and type of litigation is normal for a system of its size and age.