Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system is shrinking, not undergoing rapid growth. Rapid expansion can strain a franchisor's ability to provide adequate support, training, and quality control to its new and existing franchisees, potentially diluting brand value and franchisee support.

Potential Mitigations

• When evaluating any franchise, it is prudent for your accountant to correlate the growth rate in Item 20 with the franchisor's financial capacity in Item 21.
• A business advisor can help assess whether a rapidly growing franchisor has a scalable support system in place.
• Your attorney should review the franchisor's support obligations in Item 11 to ensure they are specific and enforceable.

Explanation

This risk was not identified. The Pump It Up system has a long operating history, with predecessor companies dating back to 2002, as disclosed in Item 1. A new or unproven system carries higher risks, as it may lack a track record of success, have underdeveloped operational procedures, and offer minimal brand recognition.

Potential Mitigations

• For any new franchise system, engaging a business advisor to scrutinize the business plan and the experience of the management team is a key step.
• Your accountant should carefully assess the financial stability and capitalization of any startup franchisor.
• It is important to have your attorney review the contractual promises for support and training, as these are critical for an unproven system.

Explanation

The business concept, focused on children's party and entertainment centers with inflatables, has been operational for many years. However, the children's entertainment industry can be subject to changing trends and preferences. While not a short-term fad, you should consider the long-term sustainability and the concept's ability to adapt to new forms of entertainment for its target market.

Potential Mitigations

• A business advisor can assist you in researching the long-term trends in the children's entertainment industry.
• Discuss the franchisor's strategy for innovation and evolving the business concept with management to gauge their long-term vision.
• Your financial advisor can help you model the potential impact of shifting consumer tastes on your revenue projections.

Explanation

This risk was not identified. Item 2 of the FDD indicates that the key personnel of the franchisor have extensive experience with the Pump It Up brand and within the franchise industry, with some executives having over a decade of history with the company or its predecessors. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• When evaluating any franchise opportunity, a business advisor should help you vet the background and specific franchising experience of the management team.
• Speaking with current franchisees provides valuable insight into the quality and competence of the franchisor's leadership team.
• Your attorney can help you understand the support commitments detailed in the franchise agreement.

Explanation

This risk was not identified in the FDD. Item 1 clearly discloses the parent company, FB Holdings, LLC, and the ultimate parent, Outlier Holdings, LLC. Furthermore, the FDD includes the parent's audited financial statements and a formal Guarantee of Performance, which is the proper procedure when the franchisor itself does not provide financials.

Potential Mitigations

• An attorney should always verify that the corporate structure is clearly disclosed in Item 1 and that required financial statements for the correct entity are in Item 21.
• If a parent company is involved, your accountant needs to review its financial health and any guarantees it provides.
• A business advisor can help investigate the reputation and operational history of any parent companies.

Explanation

Item 1 discloses that the current franchisor has predecessors dating back to 2002. While the FDD does not indicate any specific negative history, such as litigation or bankruptcy, associated with these predecessors, their existence means the system has undergone significant corporate changes. You are joining a system with a long and complex history that includes multiple ownership and entity transitions.

Potential Mitigations

• Your attorney should carefully review the information about predecessors in Items 1, 3, and 4 to check for any red flags.
• It is wise to ask long-term franchisees about their experiences under previous ownership to understand the system's evolution.
• A business advisor can help you research the history of the predecessor companies for a more complete picture of the brand's past performance.