Explanation

This risk was not identified in the Franchise Disclosure Document. The franchisee turnover rates disclosed in Item 20 appear low, with only one termination in the last three years. Monitoring franchisee turnover is crucial because a high rate can indicate systemic problems, such as a flawed business model, franchisee dissatisfaction, or lack of profitability, signaling a higher-risk investment for you.

Potential Mitigations

• Having your attorney review the Item 20 tables for any negative trends is still a prudent step.
• Contacting a diverse group of current franchisees listed in Exhibit E can provide valuable insight into their satisfaction and the system's health.
• Your business advisor can help you compare the system's disclosed turnover rate against any available industry benchmarks.

Explanation

This specific risk was not identified in the FDD package. The business model, providing pet cremation and memorialization services, serves a stable and growing market driven by long-term trends in pet ownership and care. A fad-based business is risky because your contractual obligations continue even if public interest disappears, potentially leading to failure. This does not appear to be the case here.

Potential Mitigations

• A business advisor can help you research long-term market trends to confirm the sustainability of the industry.
• In discussions with the franchisor, you could ask about their plans for future service innovation and adaptation to market changes.
• Assessing the business's resilience to economic shifts with your financial advisor is always a prudent measure.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives, particularly the President, Michael Harris, have extensive prior experience in the pet cremation and funeral home industries, dating back to 2009. Inexperienced management can be a significant risk, as it may lead to flawed strategies, weak support systems, and a higher potential for business failure for franchisees.

Potential Mitigations

• It is still valuable to discuss the management team's accessibility and quality of support with current franchisees.
• A business advisor can help you further vet the backgrounds of the key leadership team disclosed in Item 2.
• Your attorney could inquire about the company's strategic planning processes and how management experience informs them.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is privately held by its founder, Michael Harris, with no disclosure of ownership by a private equity firm. This risk matters because PE ownership can sometimes lead to strategies focused on short-term profits, such as cutting franchisee support or increasing fees, rather than the long-term health of the brand.

Potential Mitigations

• Your attorney can help you verify the company's ownership structure through public record searches.
• Asking the franchisor directly about any potential plans for a future sale of the company could provide useful context.
• A business advisor can help you understand the typical operational differences between founder-led and PE-owned franchise systems.

Explanation

This risk was not identified in the FDD. Item 1 discloses the franchisor and its affiliates but does not mention a parent company. Failure to disclose a parent company, especially if it guarantees the franchisor's obligations or is a key supplier, can obscure the true financial stability and control structure of the franchise system, preventing you from making a fully informed decision.

Potential Mitigations

• Your attorney can review the corporate structure disclosed in Item 1 to confirm there are no undisclosed parent entities.
• It is prudent to ask the franchisor to confirm in writing that no undisclosed parent or holding company exists.
• Your accountant can analyze the affiliate relationships described in the FDD to check for any financial dependencies that might imply a parent-like role.

Explanation

Item 1 discloses that a predecessor entity, Pet Passages, Inc., operated a licensing model before the current franchising model was established. Item 20 tables show that all 12 of these precursor licensed outlets were terminated or ceased operations in 2021 as part of this transition. While the company provides a reason, the complete turnover of the previous business model's operators could indicate historical challenges or dissatisfaction that may be relevant to you.

Potential Mitigations

• Your attorney should carefully review the disclosures regarding the predecessor and the transition from licensing to franchising.
• If possible, it could be insightful to attempt to contact some of the former licensees to understand their experience.
• A business advisor can help you analyze the potential risks of joining a system that has completely rebooted its business model.

Explanation

This risk was not identified in the FDD package, as Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, particularly lawsuits from franchisees alleging fraud or from the franchisor against franchisees, can be a major red flag. It may signal deep-seated problems with the franchisor's business practices, franchisee relations, or the viability of the system itself.

Potential Mitigations

• Even with no disclosed litigation, your attorney can conduct public record searches to check for any legal disputes involving the franchisor or its principals.
• Speaking with current and former franchisees is a good way to learn about any undisclosed disputes or general dissatisfaction.
• It's wise to have your business advisor help you assess the overall health of franchisor-franchisee relations within the system.