Explanation

This risk was not identified. The audited financial statements for NP Franchise Group, LLC (the Franchisor) for the fiscal year ending January 31, 2024, show positive net income and growing members' equity. However, any business carries financial risks, and a franchisor's stability is crucial for providing long-term support, marketing, and system development. A decline in financial health could impact the resources available to you.

Potential Mitigations

• Your accountant should review the provided audited financial statements, including footnotes and the auditor's opinion, to form an independent assessment of financial stability.
• Inquire with your business advisor about the franchisor’s financial strategy and its plans for future investments in the brand and support systems.
• Ask your attorney to confirm if the state requires any financial assurances, like a bond or escrow, based on the franchisor's financials.

Explanation

This risk was not identified. The data in Item 20 shows very low franchisee turnover over the last three reported periods, with zero terminations or non-renewals. Low turnover can suggest a stable system and franchisee satisfaction. However, it is still important to understand the reasons why the few franchisees who did leave the system chose to do so.

Potential Mitigations

• Speaking with former franchisees listed in Exhibit I is a critical step your business advisor can help you prepare for, to understand their reasons for leaving.
• Your attorney can help you formulate questions for the franchisor regarding any franchisee departures to gain more context.
• Have your accountant review the Item 20 tables to independently verify the turnover rates and trends over the last three years.

Explanation

This risk was not identified. The data in Item 20 shows that the franchise system has experienced slow and stable growth over the last few years, not rapid expansion. Rapid growth can sometimes strain a franchisor's ability to provide adequate support to all its franchisees. The stable growth rate here suggests this is not a current concern.

Potential Mitigations

• A business advisor can help you analyze the system's growth trajectory in Item 20 in the context of the overall industry.
• Ask the franchisor about their future growth plans to understand if a more rapid expansion is anticipated.
• When speaking with current franchisees, you should still inquire about the quality and timeliness of the support they receive from the franchisor.

Explanation

This risk was not identified. The franchisor and its predecessors have been involved in the vehicle rental business since 1996, indicating a long operational history and an established brand. An unproven system would carry higher risks related to the viability of the business model and the franchisor's ability to provide effective support.

Potential Mitigations

• Your business advisor can help you research the brand's reputation and history in the vehicle rental market.
• When speaking with franchisees, ask about the evolution of the business model and the franchisor's support over time.
• Your attorney should still review the complete history of the franchisor and its predecessors as disclosed in Item 1.

Explanation

This risk was not identified. The franchise operates in the vehicle rental industry, which is a long-established market and not a fad. A business based on a fad carries the risk of declining consumer interest over time, which could jeopardize your long-term investment even if your contractual obligations to the franchisor continue.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape of the vehicle rental industry in your specific market.
• Discuss the stability and future of the car rental market with your financial advisor to assess long-term viability.
• When speaking with franchisees, ask about their long-term outlook on the industry and the brand's position within it.

Explanation

This risk was not identified. The executive profiles in Item 2 describe a management team with many years, and in some cases decades, of experience in the vehicle rental and franchising industries. An inexperienced management team could pose a risk through a lack of adequate systems, support, or strategic direction.

Potential Mitigations

• Your business advisor can help you research the professional backgrounds and reputation of the key executives listed in Item 2.
• When speaking with franchisees, ask about their direct experiences and interactions with the franchisor's management team.
• During your own interactions with the franchisor, assess the professionalism and knowledge of the management team.

Explanation

This risk was not identified. Item 1 details the ownership structure and does not indicate that the franchisor is owned by a private equity firm. Private equity ownership can sometimes introduce a focus on short-term financial returns over the long-term health of the franchise system, but that does not appear to be a factor here.

Potential Mitigations

• Your attorney should review the ownership structure disclosed in Item 1 to confirm the identity and nature of the parent companies.
• A business advisor can help you research the parent companies to understand their history and core business focus.
• Ask the franchisor to explain the relationship and synergies between it and its parent companies.

Explanation

This risk was not identified. The FDD discloses the parent companies in Item 1. While the parents' financial statements are not included, the franchisor's own audited financials are provided and appear strong, and there is no disclosure of a parent guarantee that would mandate their inclusion. Failure to disclose a parent or its financials when required could obscure the true financial stability of the system.

Potential Mitigations

• Your accountant should review the provided franchisor financials to determine if they are sufficient for a complete risk assessment.
• Ask your attorney to confirm whether any conditions described in Item 21 would legally require the inclusion of parent company financials.
• Your business advisor can help investigate the parent companies to better understand their role and relationship with the franchisor.

Explanation

This risk was not identified. The FDD discloses the franchisor's history and notes in Item 4 that a former parent company filed for bankruptcy in 2017, with the case being dismissed in 2018. While this is a significant historical event, it has been disclosed. A failure to disclose such history would prevent you from having a full picture of the system's past challenges.

Potential Mitigations

• Your attorney should review the disclosures in Items 1, 3, and 4 to understand the full history of the franchisor and its predecessors.
• Discuss the impact, if any, of the former parent's bankruptcy with long-term franchisees.
• A business advisor can help you research the current health of the system to ensure past issues have been fully resolved.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that is required to be disclosed. A pattern of lawsuits, particularly claims of fraud or breach of contract brought by other franchisees, would be a significant red flag about the health of the franchise system and the franchisor's practices.

Potential Mitigations

• Your attorney can conduct an independent search of court records to verify if there is any litigation involving the franchisor that was not required to be disclosed.
• When speaking with current and former franchisees, you can ask if they are aware of any significant legal disputes within the system.
• A business advisor can help you research online forums or franchisee association websites for discussions of potential disputes.