Explanation

This risk was not identified in the FDD package. The business of drywall and wall surface repair is a well-established trade with consistent demand, not typically considered a fad. However, it's always important to assess whether a franchisor’s specific methods, branding, or market niche have long-term viability or are tied to temporary trends. A business model dependent on a fad can face collapse when consumer interest wanes, leaving you with long-term contractual obligations.

Potential Mitigations

• It is beneficial to have a business advisor help you research the long-term stability and demand within the local home services market.
• Understanding the competitive landscape and how the franchisor's model differentiates itself is a key analysis to perform.
• Reviewing the franchisor's plans for future service development and innovation can provide insight into their long-term strategy.

Explanation

Item 2 indicates the key executives have several years of experience with this franchise system and its predecessor, as well as broader experience in related fields. Therefore, the specific risk of inexperienced management does not appear to be a primary concern. Generally, a management team lacking experience in franchising or the specific industry can lead to poor strategic decisions, weak support systems, and a higher risk of failure for franchisees.

Potential Mitigations

• It is still worthwhile to ask current franchisees about their direct experiences with the management team's competence and support.
• A business advisor can help you research the professional backgrounds of the executives listed in Item 2 for a more complete picture.
• Engaging with management during the discovery process can provide personal insight into their expertise and vision for the system.

Explanation

The FDD clearly identifies the parent company structure in Item 1. Furthermore, the financial statements provided in Exhibit A are for the franchisor entity itself, PatchMaster Franchise, LLC. As the parent company does not appear to be guaranteeing the franchisor's obligations, its financials are not required and are not provided. Therefore, this specific risk of non-disclosure is not present. In general, hiding a parent company's identity or financials when required could mask significant risks.

Potential Mitigations

• Having your attorney confirm the corporate structure and any guarantees is a good practice.
• An accountant should verify that the provided financial statements are for the correct legal entity you are contracting with.
• Ensuring that all entities with significant control or providing essential services are properly disclosed is a key due diligence step for your attorney.

Explanation

Item 1 clearly identifies PM Franchising, LLC as the predecessor from whom the current franchisor acquired the system in December 2021. Item 2 further details the executives' history with this predecessor. The FDD appears to provide the required historical context. Generally, a failure to properly disclose predecessor history could hide past issues like litigation or high franchisee failure rates, preventing you from seeing a complete picture of the system's past performance.

Potential Mitigations

• It's a good practice to ask long-term franchisees about their experiences under the predecessor's management.
• Your attorney can help you search for public information or news articles related to the predecessor company for additional context.
• A business advisor can assist in evaluating how the transition from the predecessor might have impacted the system's culture and operations.

Explanation

Item 3 discloses one past regulatory action against an affiliate, Restoration 1 Franchise Holding, LLC, for selling a franchise after its registration had lapsed in Virginia. The matter was settled. While this involves an affiliate and not PatchMaster LLC directly, it is a relevant disclosure. However, it does not represent a broad pattern of franchisee-initiated litigation alleging fraud or misrepresentation against the franchisor itself. A pattern of such lawsuits would be a major red flag about the franchisor's practices.

Potential Mitigations

• Your attorney should review the details of the disclosed litigation involving the affiliate to understand its nature and resolution.
• It is prudent to perform an independent search for any other litigation involving the franchisor or its principals.
• Asking the franchisor about compliance procedures they have implemented since the affiliate's past issue can provide insight.