Explanation

This risk was not identified in the FDD package. While the franchise system experienced rapid growth in 2022 and 2023, growth slowed significantly in 2024. When a franchisor expands too quickly, its ability to provide adequate support, training, and quality control can be strained. This may lead to operational challenges and diminished value for franchisees who require timely and effective assistance from the corporate office.

Potential Mitigations

• Your business advisor can help you analyze the growth trends in Item 20 and question the franchisor about their capacity to support all units.
• Consult with a range of existing franchisees, both new and established, to gauge their satisfaction with the current level of franchisor support.
• A thorough review of the franchisor's financial statements with your accountant may reveal if they are investing adequately in support infrastructure.

Explanation

This risk was not identified in the FDD package. The franchisor, PuroSystems, has been offering franchises since 1991, indicating it is a well-established system. An unproven franchise carries higher risks because its business model, brand recognition, and support systems have not withstood the test of time. New systems may have a higher failure rate and less experienced management, making franchisee success more uncertain.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the franchisor's history and the system's maturity.
• Speaking with the earliest-joining franchisees can provide insight into the system's evolution and stability; your attorney can help frame questions.
• An accountant should always review the franchisor's financial history for signs of stability and sustainable growth.

Explanation

This risk was not identified in the FDD package. The business provides property damage restoration and cleaning services, which are driven by recurring events like fires and floods rather than short-term trends. Investing in a fad business is risky because consumer demand can disappear quickly, potentially leaving you with a failing business and long-term contractual obligations to the franchisor.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any franchise industry.
• Reviewing the franchisor's plans for innovation and service development in Item 11 can provide insight into its long-term vision.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives at PuroSystems have extensive experience in the restoration industry and have been with the company or its affiliate for many years. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an underdeveloped operational system, which can jeopardize your investment.

Potential Mitigations

• When evaluating any franchise, your business advisor should help you vet the backgrounds of all key executives listed in Item 2.
• Speaking with existing franchisees is a crucial step to gauge their perception of the management team's competence and responsiveness.
• An attorney can help you understand if the franchisor has a history of leadership turnover that might signal instability.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the parent company is Puro Enterprise Holdings, LLC, and there is no mention of private equity ownership. A private equity-owned franchisor may prioritize short-term returns for its investors over the long-term health of the franchise system, which could lead to increased fees, reduced support, or a quick sale of the company.

Potential Mitigations

• Your attorney can help you research the ownership structure of any franchisor to identify potential private equity involvement.
• If a franchisor is PE-owned, a business advisor can help investigate the firm's track record with other franchise brands.
• Discussing any changes in system philosophy since an ownership change with existing franchisees is a critical due diligence step.

Explanation

This risk was not identified in the FDD package. Predecessor history is disclosed in Item 1. When a franchisor acquires a system from a predecessor, it is important to understand the predecessor's history, including any litigation, bankruptcy, or high franchisee turnover. Undisclosed or downplayed negative history can hide systemic problems that may continue under the new ownership, affecting your potential for success.

Potential Mitigations

• Your attorney should carefully scrutinize Item 1, 3, and 4 for any information regarding predecessors.
• A business advisor can help you conduct independent research on a predecessor's reputation and history.
• If possible, speaking with franchisees who operated under the predecessor can provide invaluable, firsthand insight.