Explanation

This risk was not identified in the FDD package. A fad business is one tied to a fleeting trend, posing a risk of declining consumer interest that could outlast your franchise agreement. Assessing a concept's long-term market demand is crucial for sustainable success.

Potential Mitigations

• Engaging a business advisor to research the long-term market trends for basketball-focused fitness centers is a prudent step.
• An analysis of the competitive landscape and consumer demand beyond current trends should be conducted with your business consultant.
• Consider the business's adaptability to changing fitness trends during discussions with your financial advisor.

Explanation

This risk was not identified in the FDD package. The executives listed in Item 2 appear to have several years of experience with the PickUp USA concept and brand. However, a lack of deep experience in managing a franchise system, distinct from simply operating a business, can pose a risk to franchisees who rely on that specific expertise for support and guidance.

Potential Mitigations

• It would be beneficial to ask current franchisees about their satisfaction with the management team's support and strategic direction.
• A thorough review of the management team's franchising-specific experience with your business advisor is recommended.
• You should inquire directly with the franchisor about the specific franchising experience of their key support staff.

Explanation

This risk was not identified in the FDD package, as Item 1 does not disclose ownership by a private equity firm. When PE firms own franchisors, they may prioritize short-term investor returns over the long-term health of franchisees, potentially leading to increased fees or reduced support.

Potential Mitigations

• A conversation with your attorney about the implications of the franchisor's assignment rights is always wise, regardless of current ownership.
• Should the franchisor be sold, a business advisor can help you research the new owner's track record with other franchise systems.
• Understanding the typical investment timelines and strategies of PE firms can provide helpful context if the ownership structure changes.

Explanation

This risk was not identified in the FDD package. The franchisor, PickUp USA, does not appear to be a subsidiary of a parent company whose financials would be required for a full risk assessment. Failing to disclose a parent company or its financials when required can obscure the true financial backing and stability of a franchise system.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure to confirm the absence of any undisclosed parent entities.
• It is good practice to have your accountant review the provided financial statements for any notes that might reference a parent company.
• Understanding whether a parent company guarantees the franchisor's obligations is a key question your attorney can help you ask.

Explanation

This risk was not identified in the FDD package. Item 1 states that PickUp USA does not have any predecessors. When a franchisor has predecessors, it is important to review their history for any signs of trouble, such as litigation or bankruptcy, as these could indicate underlying issues with the system that may have been inherited by the current franchisor.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor information disclosed in Item 1.
• When predecessors exist, it's wise to ask long-term franchisees about their experience under the prior ownership.
• A business advisor can help you conduct independent research on a predecessor's business history if one is disclosed.

Explanation

This risk was not identified in the FDD package, as Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits filed by franchisees against a franchisor, especially alleging fraud or misrepresentation, can be a major red flag indicating systemic problems with sales practices or franchisor performance.

Potential Mitigations

• Even with no disclosed litigation, asking your attorney to perform an independent search for lawsuits against the franchisor is a prudent step.
• Speaking with former franchisees can sometimes reveal disputes that did not result in publicly filed litigation.
• Your business advisor can help you research the franchisor’s reputation online for any signs of widespread franchisee dissatisfaction.