Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates a significant contraction in the number of franchised units, not rapid growth. A franchisor expanding too quickly can strain its ability to provide adequate support, training, and resources to its franchisees, potentially compromising the quality and value of the system. Careful analysis of growth rates against the franchisor's support infrastructure is a key due diligence step.

Potential Mitigations

• Engaging a business advisor can help you analyze system growth trends shown in Item 20 against the support structure described in Item 11.
• Your accountant should review the franchisor's financial statements to assess if they have the capital and cash flow to support their stated growth plans.
• Posing questions to current franchisees about the quality and timeliness of franchisor support is a crucial step in your due diligence.

Explanation

This risk was not identified in the FDD package. Payless Car Rental System, Inc. (Payless) and its parent, Avis Budget Group, have operated for many years and are well-established in the car rental industry, as detailed in Item 1. An unproven system presents higher risks because its business model, brand recognition, and support structures are not yet time-tested, which can affect a franchisee's potential for success. This is not a primary concern here.

Potential Mitigations

• A review of the franchisor's history in Item 1 with your business advisor is important to understand the system's maturity and track record.
• Your attorney can help you investigate the history of the brand and its market presence to gauge its long-term viability.
• For any franchise, speaking with long-term franchisees can provide valuable insight into the evolution and stability of the business model.

Explanation

This risk was not identified in the FDD package. The car rental industry is a mature and established sector, not a business model based on a fleeting trend. A fad business carries the risk that consumer interest may decline rapidly after an initial period of popularity, potentially leaving franchisees with a non-viable business and a long-term contractual obligation. This does not appear to be a significant concern for this franchise.

Potential Mitigations

• A business advisor can help you assess the long-term consumer demand and market stability for any industry you consider entering.
• Reviewing the franchisor's history and plans for innovation in Item 1 and Item 11 may offer insights into their long-term strategic focus.
• An analysis of the competitive landscape with your business advisor can help determine the sustainability of the business model.

Explanation

This risk was not identified in the FDD package. Item 2 of the FDD lists the executive team, who are part of the larger Avis Budget Group. The executives generally have extensive and long-term experience in the car rental industry and with the company. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an unrefined business system.

Potential Mitigations

• It is always prudent to review the management team's experience in Item 2 with a business advisor to gauge their industry and franchising expertise.
• Asking current franchisees about their perception of the management team's competence and support provides valuable real-world insight.
• Your attorney can help you research the professional background of the key executives listed.

Explanation

This risk was not identified in the FDD package. The franchisor's ultimate parent company, Avis Budget Group, Inc., is a publicly traded corporation, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives, which may not always align with the long-term health of the franchisees or the brand. This specific risk is not applicable here.

Potential Mitigations

• Your attorney should always verify the ownership structure of the franchisor as disclosed in Item 1.
• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's track record with other franchise systems.
• Understanding the ownership structure is critical for assessing the long-term strategic direction and stability of the franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent and affiliate structure, identifying Avis Budget Group, Inc. as the ultimate parent and guarantor. The audited financial statements for the parent are provided in Exhibit G as required. Failure to disclose a parent or provide its financials when required can obscure the true financial backing and stability of the franchise system, which is not an issue in this FDD.

Potential Mitigations

• Your attorney should always confirm that the parent company structure is clearly disclosed in Item 1 and that required financials are included in Item 21.
• An accountant should review any parent company guarantee to understand the extent and conditions of the financial backing provided.
• It is wise to verify with your attorney whether the provided financials meet all federal and state disclosure requirements.

Explanation

This risk was not identified in the FDD package. Item 1 provides a history of the franchisor and its predecessors. While there is a history of acquisitions and name changes, the significant risks appear to stem from the current operational and financial status of the company, rather than from undisclosed issues with predecessors. Any historical litigation is included in the extensive Item 3 disclosure.

Potential Mitigations

• Your attorney can help you research the history of any predecessor companies mentioned in Item 1 to check for issues not disclosed.
• Talking to long-tenured franchisees can often provide valuable, firsthand information about the system's history under previous owners.
• A business advisor can assist in evaluating how the system may have changed or been impacted by past acquisitions or mergers.