Explanation

This risk was not identified in the FDD package. Item 20 data does not show a high rate of terminations, non-renewals, or other cessations. High franchisee turnover is a critical red flag because it can signal systemic problems, such as a flawed business model, franchisee unprofitability, or inadequate support from the franchisor, which would directly affect your ability to successfully recruit and support franchisees in your territory.

Potential Mitigations

• Even with low reported turnover, it is prudent to have your attorney help you formulate questions for current and former franchisees about their satisfaction.
• A discussion with your accountant about the data in Item 20 can help you understand the system's stability and growth patterns over the last three years.
• Engaging a business advisor to research industry-average turnover rates can provide valuable context for the franchisor's disclosed numbers.

Explanation

This risk was not identified in the FDD package. While the wellness industry is subject to trends, infrared saunas are part of a broader, established market. A fad business represents a significant risk because its popularity may be short-lived, potentially leading to a sharp decline in customer demand and revenue, leaving you with long-term contractual obligations for a business that is no longer viable.

Potential Mitigations

• A business advisor can help you research the long-term market trends for infrared sauna and wellness services to assess sustainability.
• Discuss with the franchisor their plans for innovation and adaptation to stay relevant in the evolving wellness market.
• An accountant can help you model the financial impact of potential shifts in consumer trends on the business's long-term profitability.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives have prior experience in the wellness and franchise industries, including with well-known brands like F45 and Orangetheory. Inexperienced management is a concern because it can lead to poor strategic decisions, underdeveloped operational systems, and inadequate franchisee support, which would directly impact your success as an Area Representative.

Potential Mitigations

• It is still advisable to interview current franchisees about their direct experiences with the management team's competence and support.
• A business advisor can help you perform background research on the key executives listed in Item 2 to verify their stated experience.
• During your due diligence, asking the franchisor about the management team's specific experience in supporting an Area Representative network is a good idea.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned by a private equity firm. This is a risk factor because private equity ownership can sometimes lead to a focus on short-term profitability and a quick exit strategy, which may not align with the long-term health of the franchise system or the individual success of franchisees.

Potential Mitigations

• It is good practice to ask your attorney to confirm the ownership structure of the franchisor entity.
• A business advisor can help you research the ownership history of the company for any past private equity involvement.
• Discussing the long-term vision for the brand with the franchisor can provide insight into their strategic priorities.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any parent companies. Failing to disclose a parent company or its financial statements when required can be a significant issue, as it may hide the true financial condition or controlling interests of the entity you are contracting with, obscuring potential risks to the system's stability.

Potential Mitigations

• Your attorney can verify the corporate structure of the franchisor to ensure there are no undisclosed parent entities.
• If a parent entity were involved, an accountant would need to review its financial statements to assess its ability to support the franchisor.
• In any franchise, understanding the complete ownership and support structure is a key piece of due diligence a business advisor can assist with.

Explanation

This risk was not identified in the FDD package, as Item 1 states there are no predecessors. Hidden or downplayed negative history from a predecessor entity—such as litigation, bankruptcy, or high franchisee failure rates—could obscure systemic problems that may have been inherited by the current franchisor, presenting a risk to your investment.

Potential Mitigations

• It is always a good practice for your attorney to perform an independent search for any prior business names or related entities.
• Asking long-tenured employees or franchisees about the history of the company can sometimes reveal information about prior business structures.
• A business advisor can help you investigate the brand's history beyond the disclosures in the FDD.

Explanation

This risk was not identified in the FDD package. Item 3 discloses no litigation. A pattern of litigation against a franchisor, especially claims of fraud or misrepresentation from other franchisees, is a major red flag. It can indicate deep-seated problems in the franchisor's business practices or franchisee relationships, suggesting a higher risk of future disputes for you.

Potential Mitigations

• It is prudent to have your attorney conduct an independent public records search for litigation involving the franchisor or its principals.
• Asking current and former franchisees about their experiences and any disputes they are aware of is a crucial due diligence step.
• A business advisor can help you understand what a normal level of litigation might be for a franchise system of this size and age.