Explanation

This specific risk was not identified, as Item 20 indicates PetU has not had any franchised outlets and therefore no franchisee turnover. In general, high turnover rates (terminations, non-renewals, or closures) can signal systemic problems such as unprofitability, poor support, or franchisee dissatisfaction. Reviewing this data in an established system is a critical due diligence step.

Potential Mitigations

• When evaluating any franchise, your accountant should help you analyze the franchisee turnover rates in Item 20 over a three-year period.
• A business advisor can help you compare a system's turnover rate against available industry benchmarks to gauge its relative health.
• If turnover appears high, consulting with your attorney on how to question former franchisees is a key part of due diligence.

Explanation

This risk is not present, as the FDD indicates PetU has not yet begun adding franchised outlets. While growth is often positive, very rapid expansion in other franchise systems can sometimes strain a franchisor's ability to provide adequate support to all units. Evaluating the franchisor's support infrastructure in relation to its growth pace is an important consideration for any prospective franchisee.

Potential Mitigations

• Your business advisor can help you assess whether a franchisor's support staff and infrastructure seem adequate for its projected growth.
• Discussing the quality and responsiveness of franchisor support with existing franchisees is a crucial step recommended by legal advisors.
• An accountant can review the franchisor's financials to determine if they are reinvesting in support systems to match expansion.

Explanation

This risk was not identified. The pet care industry, including services like dog daycare, boarding, and grooming, is well-established and shows long-term consumer demand rather than being a temporary fad. For any business concept, it is important to assess its long-term market viability and resilience to economic changes, but this specific business model does not appear to be trend-dependent.

Potential Mitigations

• A business advisor can help you research the long-term market trends and competitive landscape for any industry you consider entering.
• When evaluating a franchise, discussing its plans for future innovation and adaptation with your attorney is a wise step.
• Your accountant can help analyze how a business model might perform under various economic conditions.

Explanation

This risk was not identified, as there is no indication in Item 1 that PetU is owned by a private equity firm. When PE firms own franchisors, their focus on short-term returns can sometimes conflict with the long-term health of the franchisees. This is something a prospective franchisee should be aware of and investigate when analyzing any franchise opportunity.

Potential Mitigations

• Your attorney can help you investigate the ownership structure of any franchisor to identify if a private equity firm is involved.
• A business advisor can help you research a PE firm's track record with other franchise brands if they are the owner.
• If PE ownership exists, asking existing franchisees about changes in fees, support, or policies since the acquisition is an important due diligence step.

Explanation

This risk does not appear to be present, as PetU explicitly states in Item 1 that it does not have a parent company. It does disclose its affiliates. Generally, if a franchisor is a subsidiary, the parent company's financial health can be material. A failure to disclose a parent or its financials when required can obscure the true financial backing of the franchise system.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all relevant parent and affiliate entities are listed.
• If a parent company exists and provides a guarantee, an accountant must review the parent's financial statements.
• Understanding the relationships and dependencies between the franchisor and any parent or affiliate entities is a key task for your business advisor.

Explanation

This risk is not applicable, as Item 1 of the FDD states that PetU has no predecessors. In cases where a franchisor has acquired a business or its assets from a predecessor, it is important to review the predecessor's history for any signs of trouble, such as litigation or high franchisee turnover, which could carry over to the new entity.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and their history.
• If a predecessor is identified, independent research into their business record can be a valuable step, assisted by your business advisor.
• Speaking with long-term franchisees who operated under a predecessor can provide valuable insight.

Explanation

This risk was not identified, as Item 3 of the FDD discloses no litigation. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag in other FDDs. Similarly, a high volume of lawsuits initiated by the franchisor against franchisees can indicate an overly aggressive or litigious culture.

Potential Mitigations

• A thorough review of Item 3 with your franchise attorney is essential to understand the nature of any disclosed litigation.
• Your attorney can help you conduct public record searches to see if there is any litigation not required to be disclosed.
• If litigation is present, speaking with franchisees involved in those lawsuits can provide critical, first-hand information.