Explanation

This risk was not identified. The franchise system's predecessor began operating in 1991, indicating it is an established brand rather than a new or unproven one. However, in any franchise, it is important to assess how long the current ownership and management have been in place, as recent changes could introduce risks similar to those of a new system, such as shifts in strategy or support quality.

Potential Mitigations

• Your business advisor can help you research the franchisor's history and the experience of its current leadership team.
• Consulting with long-term franchisees can provide insight into the system's evolution and stability over time.
• An attorney can help review the FDD for any recent changes in ownership or control that might impact the system's direction.

Explanation

This risk was not identified in the FDD package. Pest control is a mature and established service industry with consistent demand, not typically considered a fad. When evaluating any franchise, however, it is still wise to consider the long-term demand for its specific products or services in your local market and how the brand differentiates itself from competitors.

Potential Mitigations

• A business advisor can help you conduct local market research to confirm sustained demand for the specific services offered.
• It is prudent to evaluate the franchisor's plans for innovation and adaptation to stay competitive over the long term.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer preferences.

Explanation

This risk was not identified. The executives and managers detailed in Item 2 of the FDD appear to have significant prior experience in the franchising industry and/or related business sectors. Evaluating the depth and relevance of the leadership team's experience is a key step in due diligence, as a strong team can be critical for providing effective support and strategic direction for the franchise system.

Potential Mitigations

• You should still discuss the management team's accessibility and effectiveness with current franchisees.
• A business advisor can help you perform background research on key executives to verify their track record.
• Posing questions to the franchisor about their management philosophy and long-term vision is a sound practice.

Explanation

This risk was not identified. The FDD appears to properly disclose the parent company, HS Group Holding Company, LLC (HSGH), and includes its financial statements and a guarantee of performance. In any franchise review, it's crucial to ensure that if a franchisor is a subsidiary, the parent company's role and financial standing are made clear, especially if the parent provides essential support or guarantees.

Potential Mitigations

• Your attorney should always verify the corporate structure to ensure all relevant parent and affiliate entities are properly disclosed.
• If a parent company provides a guarantee, having your attorney review its terms is essential to understand the scope of the protection offered.
• An accountant should confirm that any provided parent financials adhere to proper accounting and auditing standards.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the predecessor entity and the date of asset acquisition. No adverse history, such as bankruptcy or significant litigation involving the predecessor, is disclosed in Items 3 and 4. A franchisee should always review the history of both the current franchisor and any predecessors to understand the full lineage and historical health of the franchise system.

Potential Mitigations

• A thorough review of Items 1, 3, and 4 for any information related to predecessors is a standard part of due diligence your attorney should perform.
• Asking long-tenured franchisees about their experiences under any previous ownership can provide valuable historical context.
• Your business advisor can help you research the public records of any predecessor entities for additional information.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This suggests there is no current pattern of significant lawsuits filed by or against the franchisor that would require disclosure, such as franchisee claims of fraud. A clean litigation history is a positive indicator, but does not eliminate the need for thorough due diligence on all other aspects of the franchise.

Potential Mitigations

• It is still advisable to conduct your own public record searches for litigation involving the franchisor, with the help of your attorney.
• Discussing any past or present disputes with current and former franchisees can provide insights beyond what is disclosed in Item 3.
• Your attorney should review the dispute resolution clauses in Item 17 to understand how conflicts are handled when they do arise.