Explanation

This specific risk was not identified in the FDD Package. The Item 20 tables for 2022-2024 do not show any franchisee terminations, non-renewals, or other cessations of operation. Generally, high franchisee turnover can be a major red flag, indicating potential issues with the business model's profitability, franchisor support, or franchisee satisfaction. However, as this is a very new system, with most units opening in 2024, turnover data may not yet be meaningful.

Potential Mitigations

• An accountant can help you analyze the Item 20 tables in any FDD to calculate the annual turnover rate.
• When reviewing any FDD, asking a significant number of former franchisees about their reasons for leaving is a critical due diligence step a business advisor would recommend.
• Your attorney should scrutinize the definitions used in Item 20, as franchisors may classify struggling outlets in ways that obscure true failure rates.

Explanation

This risk was not identified, as window and pressure washing is a well-established service industry, not a temporary trend. A fad business is one based on a short-lived craze, which could leave you with a worthless business after public interest fades. It is important to assess whether a concept has long-term market sustainability or if it is capitalizing on a novelty with a limited lifespan.

Potential Mitigations

• A business advisor can help you conduct independent market research to evaluate the long-term consumer demand for any franchise's core products or services.
• It is wise to assess a business's adaptability and resilience to economic shifts and changing trends with your financial advisor.
• Your attorney can review the FDD for any franchisor plans for innovation and product development that suggest long-term thinking.

Explanation

This risk was not identified in the FDD Package. The franchisor clearly discloses its parent company, ResiBrands LLC, in Item 1. Failing to disclose a parent or controlling entity is a serious issue, as it can hide the true financial backing, operational control, and potential risks associated with the ultimate decision-makers of the franchise system. A complete disclosure should provide a clear picture of the entire corporate structure.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1, particularly if the franchising entity is newly formed or thinly capitalized.
• If a parent company provides a guarantee, it is important for an accountant to confirm that the parent's financial statements are included and reviewed.
• A business advisor can help you understand the relationships and potential influence of all affiliated companies listed in the FDD.

Explanation

This risk was not identified in the FDD Package, as Item 1 states that the franchisor has no predecessors. When a franchisor has acquired a business from a predecessor, it's important to understand the predecessor's history. This includes reviewing any past litigation, bankruptcy, or franchisee turnover, as these can indicate inherited systemic problems that might continue to affect the franchise system under the new ownership.

Potential Mitigations

• If an FDD discloses a predecessor, your attorney should carefully analyze all related information in Items 1, 3, and 4.
• A business advisor can assist in researching a predecessor’s public reputation and history.
• In a situation with a predecessor, speaking with long-term franchisees who operated under the previous ownership is crucial for due diligence.

Explanation

This risk was not identified in the FDD Package, as Item 3 discloses no material litigation. A pattern of lawsuits filed by franchisees against a franchisor alleging fraud, misrepresentation, or breach of contract can be a significant warning sign of systemic problems. Likewise, an unusually high number of lawsuits initiated by the franchisor against its franchisees may suggest an overly aggressive or litigious operational culture.

Potential Mitigations

• Your attorney must carefully review any litigation disclosed in Item 3, including the nature of the claims and their outcomes.
• Even if no litigation is disclosed, a business advisor might recommend searching public court records for any legal disputes involving the franchisor or its principals.
• When speaking with current and former franchisees, it is useful to ask about any formal disputes they are aware of within the system.