Explanation

An analysis of the Canadian franchise data in Item 20 for the last full year (2023) shows one termination and four new openings out of a base of 18 franchisees. This represents a moderate level of turnover and growth. While not alarmingly high, any franchisee departure warrants investigation. Since the U.S. system is new, this Canadian data is the only available proxy for system stability, and you should understand the reasons for any exits.

Potential Mitigations

• Speaking with former franchisees listed in Item 20 is crucial to understand their reasons for leaving the system; your attorney can help prepare questions.
• Discuss the circumstances surrounding any terminations or transfers with the franchisor to gauge their perspective.
• Your accountant can help you analyze the turnover rates over the three years presented to identify any concerning trends.

Explanation

This risk was not identified in the FDD package. Hockey and skating skills training is a well-established segment of the youth sports industry. A business is considered a 'fad' if it's based on a short-lived trend without sustained consumer demand. Given that the underlying business concept has been in operation since 2010, it does not appear to be a fad.

Potential Mitigations

• A business advisor can help you independently research the long-term market demand for the specific services you will offer.
• To gauge sustainability, it is wise to assess how the business model might adapt to changing consumer tastes or economic conditions.
• Speaking with an accountant can help you model the financial resilience of the business in various market scenarios.

Explanation

The founder and key personnel detailed in Item 2 have extensive experience in elite hockey coaching and the Perfect Skating business itself, which has operated since 2010. However, the U.S. franchising entity is new (formed in 2022), and their direct experience managing a U.S. franchise system is limited. While the business expertise is strong, the lack of a track record in U.S. franchise management presents a low-level risk regarding navigating U.S.-specific franchise support and regulations.

Potential Mitigations

• It is wise to ask the franchisor about any U.S.-based franchise consultants or legal advisors they have engaged to guide their expansion.
• During due diligence calls with Canadian franchisees, you could inquire about management's adaptability and support capabilities.
• A business advisor can help you assess whether the management team's skills are likely to translate effectively to the U.S. franchise market.

Explanation

This risk was not identified in the FDD package. Item 1 and the general structure of the company do not indicate that the franchisor is owned or controlled by a private equity firm. Ownership appears to rest with the founders. Therefore, risks typically associated with private equity ownership, such as a focus on short-term returns over system health, do not appear to be present here.

Potential Mitigations

• As a general practice, your attorney should always help you verify the ownership structure of the franchisor entity.
• In any franchise review, a business advisor can help you understand the motivations and goals of the ownership group.
• Understanding the franchisor's long-term vision for the brand is a key due diligence step, regardless of ownership structure.

Explanation

Item 1 discloses the existence of Canadian parent and affiliate companies. However, Item 21 only provides the audited financials for the new, financially weak U.S. entity. While this may comply with disclosure rules, the lack of financial statements for the more established Canadian parent, which provides the brand and methodology, means you cannot fully assess the financial health of the overall enterprise you are relying upon. This limits your ability to gauge the stability of your ultimate business partner.

Potential Mitigations

• Your accountant should review the U.S. entity's financials with the understanding that they represent a new, dependent company.
• You can request, through your attorney, the financial statements for the Canadian parent entity to get a complete picture of the enterprise's health.
• A business advisor can help you assess the risks of partnering with a thinly capitalized subsidiary.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD does not list any predecessor entities from which Perfect Skating acquired its assets or that previously offered franchises for this system. The disclosure indicates the business was developed by its current affiliates. Therefore, there are no hidden risks associated with a predecessor's potential negative history.

Potential Mitigations

• Your attorney should always confirm the history of the franchisor and its brand as disclosed in Item 1.
• Independent research, with the help of a business advisor, can sometimes uncover brand history not technically rising to the level of a 'predecessor'.
• Speaking with long-tenured employees or franchisees can provide insights into the system's history.

Explanation

This risk was not identified in the FDD package. Item 3, which requires the disclosure of material litigation, states that there is no litigation required to be disclosed. This indicates the franchisor, its predecessors, and key personnel have not recently been involved in significant lawsuits related to fraud, franchise law violations, or other relevant matters. The absence of litigation is a positive indicator.

Potential Mitigations

• Your attorney can conduct an independent public records search to verify the absence of significant litigation.
• During due diligence calls, you can still ask current franchisees about their experiences with disputes and how the franchisor handles disagreements.
• A business advisor can help you evaluate the overall health of franchisor-franchisee relationships within the system.