Explanation

This risk was not identified in the FDD package. While rapid growth can strain a franchisor's support systems, the data in Item 20 shows the system has been shrinking over the last two years, not growing rapidly. A shrinking system presents different risks, such as declining brand value and resources.

Potential Mitigations

• Your business advisor can help you research industry trends to understand typical growth rates for comparable franchise systems.
• An accountant should review the franchisor's financial statements to assess if they have the resources to support their existing franchisees, regardless of growth.
• In discussions with current franchisees, it's wise to ask about the quality and timeliness of franchisor support.

Explanation

This risk is not present. The franchisor, under various names, has been offering franchises since 2006 and is part of a large, established parent organization (Home Franchise Concepts). While there are other risks present, the system itself is not new or unproven in the traditional sense, having operated for over a decade.

Potential Mitigations

• When evaluating any franchise, it's wise for your attorney to investigate the franchisor's corporate history, including any predecessors.
• A business advisor can help assess whether the business concept has long-term viability or is tied to a passing trend.
• Even with an established system, speaking with the earliest franchisees can provide valuable historical context.

Explanation

This risk was not identified in the FDD package. The business of providing garage organization units and flooring is part of the larger home improvement and organization industry, which generally has sustained consumer demand. While market trends can shift, the core offering does not appear to be based on a short-term or novelty fad.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for the home organization and improvement industry.
• Investigate the franchisor's history of product and service innovation to gauge their ability to adapt to changing consumer tastes.
• An accountant can assist in building financial models that test the business's resilience under various economic scenarios.

Explanation

The franchisor is a subsidiary of Home Franchise Concepts, LLC, which is ultimately controlled by a large parent, JM Family Enterprises, Inc. Although JMF is a family-owned enterprise, the multi-layered corporate structure can introduce dynamics similar to private equity ownership, such as a focus on financial performance and the potential for future sales of the entire franchise system, which could impact long-term strategy and support.

Potential Mitigations

• It is wise to have your business advisor research the ultimate parent company's history and its typical approach to managing its subsidiary brands.
• Discussing any changes in culture or support since the acquisition by the current parent company with long-term franchisees can provide valuable context.
• Your attorney should review the assignment clauses in the franchise agreement to understand what happens if the brand is sold again.

Explanation

This risk was not identified in the FDD package. The franchisor clearly discloses its parent and ultimate parent companies in Item 1. Furthermore, while the franchisor's financials show instability, the financials also disclose a commitment from the parent company to provide financial support, which is a critical piece of information for assessing risk.

Potential Mitigations

• Your attorney should always verify that the FDD clearly discloses the full corporate structure, including all parent and affiliate entities.
• If a parent company guarantee is mentioned, an accountant should scrutinize the parent's financials, if provided, to assess its ability to provide support.
• Ensure any guarantees from a parent company are contractually binding and review their terms and duration with legal counsel.

Explanation

This risk was not identified in the FDD package. In Item 1, the franchisor clearly states, "We have no predecessors." This indicates the current corporate entity is the one that has historically operated the franchise system under its various names (Closet Tailors, Tailored Living, Organized Spaces).

Potential Mitigations

• Your attorney should always confirm the franchisor's representations regarding predecessors through independent corporate records searches.
• When a predecessor does exist, a business advisor can help investigate its history for any signs of trouble.
• It's prudent to ask long-tenured franchisees about their experiences under any previous corporate ownership structures.