Explanation

An analysis of Item 20 data does not indicate a high rate of franchisee turnover in the past three years. The system has been in a rapid growth phase, with only one franchisee ceasing operations in 2024. A high turnover rate can be a significant red flag, potentially signaling systemic problems like unprofitability or poor franchisor support, but that specific risk does not appear to be present here based on the data provided.

Potential Mitigations

• Asking former franchisees listed in FDD Item 20 about their reasons for leaving is a crucial due diligence step.
• Your business advisor can help you calculate and interpret the turnover rates disclosed in the tables.
• Before investing, it is wise to have your attorney review the circumstances of any franchisee departures.

Explanation

This risk was not identified. The business model of buying and selling used consumer electronics is part of a well-established and competitive market, not a temporary fad. Fad-based businesses can be risky because consumer interest may decline rapidly, leaving you with a long-term franchise agreement for a business with dwindling demand. However, this franchise appears to operate in a durable industry sector.

Potential Mitigations

• To assess long-term viability, a business advisor can help you research market trends for second-hand electronics.
• It's beneficial to ask the franchisor about their strategies for adapting to changes in technology and consumer behavior.
• Consulting with your financial advisor can help you evaluate the business model's resilience to economic shifts.

Explanation

This risk was not identified. FDD Item 2 indicates that the key executives of PayMore Group LLC (PayMore LLC) have extensive prior experience operating similar businesses through affiliated companies, some since 2012. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support. However, the leadership team for this franchise appears to have substantial experience in the specific industry.

Potential Mitigations

• A thorough review of Item 2 with your business advisor can confirm the specific experience of each executive.
• Asking existing franchisees about their confidence in the management team's strategic direction is a valuable step.
• Your attorney can help you research the professional backgrounds of the key personnel.

Explanation

This risk was not identified. FDD Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. This type of ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. Based on the disclosures, the franchisor appears to be operated by its founding members.

Potential Mitigations

• It is prudent to have your attorney verify the ownership structure detailed in Item 1.
• If PE ownership were a factor, a business advisor could help research the firm's history with other franchise brands.
• Discussing long-term strategy with the franchisor can provide insight into their operational philosophy.

Explanation

This risk was not identified. FDD Item 1 explicitly states there is no parent company. The franchisor does disclose predecessor and affiliate relationships, and the financial statements in Item 21 are presented on a combined basis with affiliates. Failure to disclose a parent company can obscure the true financial backing and control of a franchise system, but that does not appear to be the case here.

Potential Mitigations

• Your attorney can help confirm the corporate structure and the nature of the disclosed affiliate relationships.
• An accountant should review the combined financial statements to understand the financial interplay between the franchisor and its affiliates.
• It's always wise to ask the franchisor to explain the roles of all related entities.

Explanation

This risk was not identified in the FDD. Item 1 discloses a predecessor and an affiliate that previously offered franchises, and Items 3 and 4 do not report any adverse litigation or bankruptcy history associated with them. Inadequate disclosure of a predecessor's history could hide past system failures or legal issues, but the information here appears to be disclosed without indicating significant problems.

Potential Mitigations

• Your attorney can review the disclosures regarding predecessors and affiliates in Items 1, 3, and 4.
• It can be beneficial to ask the franchisor about the history and performance of the system under these prior entities.
• If possible, a business advisor could help you research the public records of these predecessor companies.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no material litigation history that requires disclosure. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, can be a major red flag indicating systemic problems. The absence of such litigation is a positive sign, suggesting a less contentious relationship with franchisees.

Potential Mitigations

• Your attorney can perform an independent search of public court records to verify the absence of litigation against the franchisor and its principals.
• It is still a good practice to ask current and former franchisees about any disputes they may be aware of, even if not formally litigated.
• Understanding the dispute resolution process in Item 17 is always a prudent step.