Explanation

This risk was not identified. The data in Item 20 does not indicate rapid system growth; in fact, the system has remained static in size for the past two years after a significant contraction. Rapid growth can strain a franchisor's ability to provide support, so its absence here is not necessarily negative.

Potential Mitigations

• When evaluating any franchise, it is prudent to ask a business advisor to help assess if the franchisor’s support infrastructure can handle its growth plans.
• During due diligence, discussing the quality and timeliness of support with both new and established franchisees can provide valuable insight.
• An accountant's review of the franchisor's financials can help determine if they are investing sufficiently in support systems.

Explanation

This risk was not identified in the FDD package. PAE has been offering franchises since 2014, indicating it is an established system, not a new or unproven one. Investing in a new system carries higher risks due to a lack of track record and potentially underdeveloped support.

Potential Mitigations

• For any franchise, a business advisor can help you investigate the franchisor's history and the maturity of its operating systems.
• A thorough review of the management team's experience in both the specific industry and in franchising is a crucial step.
• Contacting the earliest franchisees in a system can offer perspective on how the brand and its support have evolved over time.

Explanation

This risk was not identified. The business model, focused on children's enrichment programs, appears to serve a persistent market need rather than being tied to a short-term trend. While seasonality is mentioned, the core concept does not suggest a fad business, which would present a risk of declining demand after an initial surge.

Potential Mitigations

• A business advisor can help you independently assess the long-term market demand for any franchise's products or services.
• Evaluating a franchisor's plans for innovation and adaptation is key to understanding its strategy for staying relevant.
• Consider the sustainability of any business model beyond current trends and its resilience to economic shifts with your financial advisor.

Explanation

This risk was not identified. Item 2 indicates that the key executive, Joshua Parker, has extensive experience with the core business since 2005 and has been leading the franchise entity since its inception in 2013. This long-term involvement suggests a deep understanding of the business operations and the franchise system, which is a positive factor.

Potential Mitigations

• It is always a good practice to have a business advisor help you vet the backgrounds of the entire management team.
• Speaking with existing franchisees about the quality of management's support and strategic direction offers valuable, real-world insight.
• For any franchise, asking about the team's specific experience in supporting franchisees is an important due diligence step.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is owned by its founder, Joshua Parker, and does not disclose any ownership by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system.

Potential Mitigations

• When evaluating a franchise, it is prudent to have your attorney investigate the ownership structure for any private equity involvement.
• If a private equity firm is involved, a business advisor can help research the firm's track record with other franchise systems.
• Talking to franchisees about any changes in support or fees since an ownership change can provide crucial information.

Explanation

This risk was not identified. Item 1 discloses the existence of affiliated companies, and the financial statements in Item 21 do not indicate that PAE is a thinly capitalized subsidiary dependent on an undisclosed parent. The financials are presented for the franchisor entity itself. Failure to disclose or provide financials for a critical parent company can mask significant risks.

Potential Mitigations

• Your attorney can help verify a franchisor's corporate structure to ensure there are no undisclosed parent entities.
• If a parent company guarantees the franchisor's obligations, your accountant should confirm that the parent's financial statements are provided and reviewed.
• Understanding the full corporate structure is essential for a complete risk assessment with your business advisor.

Explanation

This risk was not identified. Item 1 of the FDD states that PAE has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. Reviewing a predecessor's history is important as it can reveal inherited issues related to litigation, bankruptcy, or franchisee turnover.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any disclosure of predecessor companies.
• If a predecessor exists, it's wise to have your business advisor help research its history for any potential red flags.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable historical context.

Explanation

This risk was not identified. Item 3 of the FDD states there is no litigation that requires disclosure. A pattern of lawsuits, especially those from franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. The absence of such litigation is a positive indicator for a prospective franchisee.

Potential Mitigations

• It is always wise to have your attorney review Item 3 and conduct independent searches for litigation not required to be disclosed.
• Asking current and former franchisees about their experiences and any disputes, whether formal or informal, can provide additional context.
• A business advisor can help you evaluate the overall health and satisfaction within the franchise system.