Explanation

This risk was not identified in the FDD package. Item 20 data does not show a high rate of franchisee terminations, non-renewals, or other cessations of operation for the last three years. Monitoring this data annually is important, as high turnover can be a leading indicator of systemic problems, such as franchisee unprofitability or dissatisfaction with the franchisor's support.

Potential Mitigations

• When reviewing any FDD, ask your accountant to calculate the turnover rate from Item 20 and compare it to industry averages.
• It's wise to ask current and former franchisees about their experiences and reasons for leaving, with guidance from a business advisor.
• Your attorney should review the definitions used in Item 20 tables to ensure closures are not being masked as transfers.

Explanation

This risk was not identified in the FDD. Item 20 data shows a controlled and very limited franchise sales history, with only one new franchise opening in the last two full years. This slow growth may allow the franchisor to provide adequate support to its existing franchisees. However, this must be weighed against the franchisor's limited operating history and weak financial condition detailed in Item 21.

Potential Mitigations

• A business advisor can help you question the franchisor about their capacity to support future growth.
• Discussing the quality and responsiveness of current support with existing franchisees is a crucial due diligence step.
• An accountant should review the franchisor's financial statements to determine if they have the resources to support any future expansion.

Explanation

This risk was not identified in the provided FDD package. The car wash industry is a long-established business sector with consistent consumer demand. While specific service models may evolve, the core business is not typically considered a short-term fad. A franchisee should still evaluate the specific market and competitive landscape to ensure long-term viability for this particular brand and location.

Potential Mitigations

• Your business advisor can help you assess the long-term market demand for this specific type of car wash service in your area.
• Investigating the franchisor's plans for innovation and adaptation to market changes is a prudent step.
• A financial advisor can help you consider the sustainability of the business model and its resilience to economic downturns.

Explanation

This risk was not identified. The executives listed in Item 2, such as the CEO and COO, have several years of experience with the Prime Car Wash brand and its affiliates, dating back to 2012 and 2018 respectively. This suggests they possess direct operational experience with the business model being franchised. However, their experience specifically in managing a franchise system, as opposed to company-owned stores, is more recent, aligning with the company's 2019 franchise launch.

Potential Mitigations

• A business advisor can help you thoroughly vet the management team's background, focusing on their franchise-specific experience.
• Engaging with existing franchisees to inquire about the quality of support and management's understanding of franchisee needs is crucial.
• Asking the franchisor directly about how they have staffed their franchise support team is a reasonable inquiry.

Explanation

This risk was not identified in the FDD package. FDD Item 1 does not indicate that Prime is owned by a private equity firm. The ownership appears to be held by its members and affiliates. Therefore, the specific risks associated with a private equity ownership model, such as a focus on short-term returns over long-term system health, do not appear to be present here.

Potential Mitigations

• For any franchise, it is wise to have your attorney investigate the ownership structure for any private equity involvement.
• A business advisor can help you research the track record of any ownership group, private equity or otherwise.
• Speaking with existing franchisees about any recent changes in ownership or system direction is always a key part of due diligence.

Explanation

This risk was not identified in the FDD. Prime discloses its parent and affiliate companies in Item 1 and includes audited financial statements for the franchising entity in Item 21. While the affiliates are important to the system (e.g., as suppliers), the FDD does not indicate that a parent company's financial information is required for disclosure under FTC rules, for instance, by guaranteeing the franchisor's obligations.

Potential Mitigations

• Your attorney should always verify the corporate structure and determine if a parent company's financial guarantee is necessary for viability.
• An accountant's review of the affiliate relationships described in the FDD is important to understand financial dependencies.
• It is crucial to have legal counsel confirm that all required financial disclosures have been provided according to franchise law.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose any predecessors for Prime Car Wash Franchising LLC. The company was formed in 2019 and appears to be the original franchisor of this system. Therefore, risks associated with an incomplete or negative history from a prior franchising entity do not apply.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors or asset acquisitions.
• Independent research into the history of the brand and its founders can provide valuable context, a task for your business advisor.
• Asking long-term employees or contacts about the brand's history can sometimes uncover information not present in the FDD.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this item." This indicates that in the past year, there have been no material legal actions involving the franchisor that would allege fraud, misrepresentation, or violations of franchise law. This lack of significant litigation is a positive indicator, though it does not guarantee future disputes will not arise.

Potential Mitigations

• It's advisable for your attorney to conduct an independent search for litigation involving the franchisor that may not have met the threshold for disclosure.
• You should still ask current and former franchisees about their experiences and if they have had any significant disputes with the franchisor.
• Understanding the dispute resolution process in the Franchise Agreement is critical, a task for your attorney.