Explanation

This risk was not identified in the FDD package. The business model, tutoring services, addresses a consistent educational need rather than a fleeting trend. However, it's always wise to consider the long-term sustainability of any business. Market dynamics, technological advancements, and shifts in educational methods could affect future demand, so evaluating the franchisor's ability to adapt is an important part of due diligence.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the private tutoring industry in your specific market.
• It is wise to ask the franchisor about their long-term vision and plans for innovation to stay competitive and relevant.
• Consider the business model's resilience to economic shifts and changing consumer behavior with your financial advisor.

Explanation

This risk was not identified in the FDD package. The key executives of PAT USA, Adrian and Carly Dougherty, have been involved with the affiliated Canadian tutoring franchise, PAT Canada, since its early stages in 2010 and 2012. This indicates they possess significant experience in operating this specific type of business and in franchising, albeit primarily in a different country. This experience may mitigate some risks associated with the new U.S. entity.

Potential Mitigations

• It is still advisable to discuss the management team's direct experience with the U.S. market and legal landscape with your business advisor.
• In your conversations with U.S. franchisees, inquire about their direct experiences with the management team's support and guidance.
• Your attorney can help you understand any differences in the franchise relationship due to operating under U.S. versus Canadian laws.

Explanation

This risk was not identified in the FDD package, as Item 1 does not disclose ownership by a private equity firm. However, the Franchise Agreement gives the franchisor the right to sell the system. A future sale to a PE firm or other buyer could change the franchisor's priorities, potentially impacting fees, support, and the overall franchisee relationship. Understanding this possibility is important for long-term planning.

Potential Mitigations

• Your attorney should review the assignment clause in the Franchise Agreement to clarify your rights if the system is sold.
• It is prudent to ask the franchisor about any medium or long-term plans for selling the company.
• A business advisor can help you understand the potential impacts of a change in ownership on your franchise.

Explanation

This risk was not identified in the FDD package. Item 1 states that PAT USA has had no predecessors. The business was established as a new U.S. entity, though it is affiliated with a long-standing Canadian company. Therefore, there is no hidden history of predecessor challenges such as litigation, bankruptcy, or franchisee failures to be concerned about. Your due diligence should focus on the track record of the current U.S. entity and its Canadian affiliate.

Potential Mitigations

• Confirming the corporate history and lack of predecessors with your attorney is a good due diligence step.
• Your research, with the help of a business advisor, should focus on the reputation and history of the affiliated Canadian company, PAT Canada.
• Asking long-term Canadian franchisees about their historical experience can provide insight into the brand's operational lineage.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This is a positive sign, as it suggests the franchisor does not have a history of significant legal disputes with its franchisees, government agencies, or other parties concerning issues like fraud, misrepresentation, or breach of contract. However, you should remain diligent in your review of all other risk areas.

Potential Mitigations

• It's a good practice to have your attorney perform a public records search to confirm the absence of litigation.
• When speaking with current and former franchisees, you can still ask if they are aware of any informal disputes or disagreements within the system.
• Maintaining open communication with the franchisor can help resolve potential issues before they escalate to legal action, a strategy your business advisor can help develop.