Explanation

This risk was not identified. The data in Item 20 indicates the franchise system has been shrinking, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence is noteworthy. However, a shrinking system presents its own set of challenges regarding brand strength and market presence that should be considered.

Potential Mitigations

• It is always wise to have a business advisor evaluate the health and stability of a franchise system, regardless of its growth rate.
• Your attorney should review the franchisor's obligations for support in the Franchise Agreement to ensure they are clearly defined.
• An accountant can analyze the franchisor's financial statements (Item 21) to assess its capacity to support its existing franchisees.

Explanation

This risk is not present. The FDD indicates that the Putt-Putt system is well-established, with a history dating back to 1954 and the current franchisor operating since 2004. An unproven system carries higher risks related to brand recognition and operational support, so the long history here is a relevant factor, although past success does not guarantee future results.

Potential Mitigations

• Even with a mature system, consulting a business advisor to understand its current market position and competitive landscape is important.
• Reviewing the franchisee turnover data in Item 20 with an accountant helps gauge the recent health of the system.
• Your attorney can still help you understand all contractual obligations in the Franchise Agreement.

Explanation

This risk was not identified. Miniature golf and family entertainment centers are a long-established segment of the recreation industry, not a new or fleeting trend. Investing in a fad business carries the risk of declining consumer interest, so the established nature of this industry is a relevant factor. However, market demand and competition can still shift over time.

Potential Mitigations

• A business advisor can help you conduct local market research to assess the demand for this type of entertainment in your specific area.
• Reviewing the franchisor's plans for innovation and system updates in Item 11 is prudent for any business.
• Your accountant can help you model the financial impact of seasonality, which Item 1 notes can affect this business.

Explanation

This risk does not appear to be present. FDD Item 2 indicates that the key executives have extensive experience with the Putt-Putt system, in some cases for over a decade. The President is also a multi-unit franchisee, which may provide valuable operational perspective. Inexperienced management can be a significant risk, so their long tenure is a notable point.

Potential Mitigations

• It is still valuable to speak with current franchisees about their direct experiences with the management team's support and strategic direction.
• A business advisor can help you research the recent performance and reputation of the brand under its current leadership.
• Your attorney should confirm that the management team's obligations to the franchisee are clearly specified in the contract.

Explanation

This risk was not identified in the FDD. Item 1 suggests the franchisor is not owned by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system. The absence of this ownership structure can be a point for consideration during your due diligence.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 and explain who has control over the franchise system.
• It is wise to ask a business advisor to help you understand the franchisor's long-term vision and strategic goals.
• A review of the 'Assignment' clause in the Franchise Agreement with your attorney is crucial to understand what happens if the franchisor is sold.

Explanation

This risk does not appear to be present. The FDD discloses the franchisor and one affiliate, Putt-Putt Marketing, Inc. There is no mention of a parent company. The financial statements provided in Exhibit C are consolidated, including the affiliate, which provides a more complete financial picture of the entities you will be involved with.

Potential Mitigations

• Your attorney can help you understand the relationship between the franchisor and any affiliates disclosed in Item 1.
• Having an accountant review the consolidated financial statements is essential to assess the health of the entire enterprise.
• Always confirm with the franchisor that there are no other undisclosed entities that will have a material role in your franchise relationship.

Explanation

This risk was not identified. The FDD discloses a predecessor but does not indicate any negative history, such as litigation or bankruptcy, associated with them in Items 3 and 4. A franchisor's predecessor history can sometimes reveal inherited problems, so the absence of disclosed issues here is a relevant data point for your review.

Potential Mitigations

• When a predecessor is disclosed, it's prudent to have a business advisor help you research their history if possible.
• Speaking with long-term franchisees who may have operated under the predecessor can provide valuable historical context.
• Your attorney should review the asset transfer history from the predecessor to the current franchisor if details are available.

Explanation

A pattern of franchisee-initiated litigation against the franchisor, particularly for fraud or misrepresentation, was not found in Item 3. The document discloses one recent lawsuit initiated by the franchisor against a franchisee to enforce its contract. The absence of a pattern of claims against the franchisor is a positive indicator, though any litigation warrants review.

Potential Mitigations

• It is always wise for your attorney to review any disclosed litigation in Item 3 to understand the nature of the disputes.
• You should ask the franchisor about the circumstances of any litigation they have initiated against franchisees.
• A business advisor can help you assess whether the franchisor's litigation history suggests an overly aggressive enforcement style.