Explanation

This risk, concerning a high rate of franchisee turnover disclosed in Item 20, was not identified. The tables in Item 20 show no terminations, non-renewals, or other cessations for the past three years. However, a significant disclosure inconsistency exists between Item 20 and Exhibit F, which is addressed under the "Inconsistencies Found in FDD Package" risk. Generally, high turnover can signal systemic problems, so this data should always be carefully reviewed.

Potential Mitigations

• Your accountant should always analyze the tables in Item 20 to calculate the effective annual turnover rate.
• It is crucial to contact a significant number of former franchisees listed in Exhibit F to understand their reasons for leaving the system.
• A franchise attorney can help you interpret the provided data and identify any potential red flags or inconsistencies.

Explanation

This specific risk was not identified. The executives and directors listed in Item 2 appear to have significant prior experience in the fitness and franchising industries, including roles at established brands like Orangetheory Fitness, F45 Training, and Equinox. This level of relevant experience may be a positive factor for the franchisor's ability to manage and grow the system.

Potential Mitigations

• A business advisor can still help you vet the management team's specific track record and successes in their prior roles.
• When speaking with current franchisees, it's wise to ask about their direct experiences with the management team's leadership and support.
• Your attorney can help you understand the roles and responsibilities of the key personnel as described in the FDD.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is a subsidiary of Pvolve LLC, but there is no disclosure of ownership by a private equity firm. Franchisees should generally be aware that PE ownership can sometimes lead to a focus on short-term returns over the long-term health of the system.

Potential Mitigations

• Your attorney can help you verify the corporate structure and ultimate ownership of the franchisor.
• A business advisor can help you research the ownership of any parent companies to identify potential private equity involvement.
• Understanding the franchisor's long-term vision, regardless of ownership structure, is a crucial part of due diligence.

Explanation

This risk was not identified. The FDD clearly discloses that Pvolve Development, LLC is a subsidiary of its parent company, Pvolve LLC. While the parent company's financial statements are not provided, the franchisor entity itself provides its own audited financials as required. The primary risk stems from the weakness of the franchisor's own financial condition, which is disclosed, rather than a failure to disclose the parent.

Potential Mitigations

• Your accountant should analyze the provided financial statements of the franchisor entity itself, paying close attention to its solvency and profitability.
• An attorney can clarify the legal relationship and any obligations flowing between the parent and the franchisor subsidiary.
• It is important to understand what, if any, financial guarantees the parent company provides to the franchisor.

Explanation

This risk was not identified. The franchisor, Pvolve Development, LLC, was formed in 2019 and does not appear to have acquired the business from a predecessor. The parent company, Pvolve LLC, has been operating since 2017. There is no indication of a complex or hidden predecessor history that would obscure past system performance or issues.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessors or business acquisitions.
• A business advisor can help you research the history of the brand and its founders to ensure there is no undisclosed prior business activity.
• Asking long-tenured employees or franchisees about the company's history can sometimes reveal information not present in the FDD.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. The absence of a pattern of lawsuits filed by franchisees alleging fraud or by the franchisor against its franchisees can be a positive indicator, though it does not eliminate all potential for future disputes.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor or its principals that may not have met the threshold for disclosure.
• It is still advisable to ask current and former franchisees about any disputes they may have had with the franchisor.
• Always have an attorney review the dispute resolution clauses in the Franchise Agreement to understand your rights if a conflict does arise.