Explanation

This specific risk was not identified. The data in Item 20 for the past three years shows zero terminations, non-renewals, or franchises that ceased operations for other reasons. This indicates a stable franchisee base currently. Monitoring franchisee turnover annually remains an important part of ongoing due diligence, as a significant increase could signal systemic problems within the franchise.

Potential Mitigations

• It is still prudent to ask current franchisees about their satisfaction and future intentions with the help of a business advisor.
• Your attorney can help you understand the conditions under which the franchisor can terminate or refuse to renew your agreement.
• An accountant should help you model future scenarios to ensure you can meet all financial obligations, reducing the risk of a future default.

Explanation

The business operates in the health and wellness sector, focusing on specific services like infrared saunas and red-light therapy. While wellness is a large market, some specific modalities can be subject to rapidly changing consumer trends. There is a potential risk that the core services could be perceived as a fad over the long term of your agreement, which could impact sustained consumer demand and profitability.

Potential Mitigations

• Engage a business advisor to independently research the long-term market demand and competitive landscape for these specific wellness services.
• Question the franchisor on their strategy for innovation and adapting the service offerings to stay ahead of market trends.
• It is wise to speak with franchisees in various markets to gauge the sustainability of customer interest.

Explanation

This risk was not identified. Item 2 indicates that the executive team has prior experience in the wellness and franchise industries, including with established brands like F45 Training and Orangetheory Fitness. The founder has been involved with the Perspire brand since 2010. This suggests the management team has relevant operational and franchising experience to support the system.

Potential Mitigations

• It is still beneficial to discuss the management team's accessibility and quality of strategic guidance with current franchisees.
• A business advisor can help you assess how the team's past experience translates to the specific challenges of this brand.
• Before signing, it's wise to ensure you have an opportunity to speak with key members of the leadership team.

Explanation

This risk was not identified. The information in Item 1 and Item 2 of the FDD does not indicate that the franchisor is owned or controlled by a private equity firm. Ownership appears to reside with the management team. This avoids the specific risks often associated with PE ownership, such as a focus on short-term returns over long-term system health.

Potential Mitigations

• Your attorney should still review the 'Assignment' clause in the Franchise Agreement to understand the franchisor's right to sell the system in the future.
• Discussing the long-term vision for the company with the franchisor's leadership can provide valuable context.
• A business advisor can help you understand the implications of any potential future sale of the franchise system.

Explanation

This risk was not identified. The FDD discloses a parent company, Sweat Equity Group Holdings, LLC, and the audited financial statements in Exhibit E for the franchisor, Sweat Equity Group, LLC, appear to be prepared correctly for the franchising entity. There is no indication of an improper non-disclosure of a required parent company or its financials.

Potential Mitigations

• Your accountant should confirm that the financial statements provided are for the correct legal entity offering the franchise.
• It is prudent for your attorney to review the relationship between the parent and the franchisor entity to understand any interdependencies.
• Clarifying any guarantees or support obligations between the parent and franchisor entities with your attorney is recommended.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. This means you do not need to be concerned with risks that could be inherited from a prior company's financial issues, litigation history, or franchisee relationships. Your review can focus solely on the history of the current franchisor entity.

Potential Mitigations

• It is still a good practice to ask early franchisees about the history of the brand and the formation of the franchising company.
• Your business advisor can help you research the brand's history prior to the start of franchising to understand its origins.
• Your attorney should verify the corporate history outlined in Item 1.

Explanation

This risk was not identified. Item 3 states, "No litigation information is required to be disclosed in this Item." This indicates an absence of material litigation involving the franchisor that alleges franchise law violations, fraud, or other significant claims. This is a positive factor, suggesting a less contentious relationship between the franchisor and its franchisees or regulators.

Potential Mitigations

• It is still wise to ask current and former franchisees about any informal disputes they may have had and how they were resolved.
• Your attorney can conduct an independent public records search to confirm the absence of significant litigation.
• Understanding the dispute resolution process in the Franchise Agreement with your attorney is important for any future disagreements.