Explanation

Item 20 tables show that RealClean has no franchised outlets that have opened, closed, been transferred, or terminated. The franchise system is new and has no history of franchisee turnover. While this means there is no negative data, it also means there is no track record of franchisee success or sustainability to evaluate. Your investment will be among the first in this system.

Potential Mitigations

• Speaking with the affiliate's management about their operational history can provide some insight, a task for which your business advisor can prepare you.
• Your accountant should build financial models with conservative assumptions, as there is no franchisee performance data to rely on.
• It is important to have your attorney review the agreement for protections given the lack of system history.

Explanation

This risk was not identified in the FDD package. The franchisor is a new system with no franchisees, so it is not currently experiencing rapid growth. However, if the system begins to sell franchises quickly, it could strain its resources. Rapid growth can sometimes outpace a franchisor's ability to provide adequate support, training, and quality control to all of its new franchisees, potentially harming their businesses.

Potential Mitigations

• It is prudent to ask the franchisor about their strategic growth plan and how they intend to scale support systems.
• A business advisor can help you assess whether the franchisor's staffing and infrastructure plans seem adequate for their growth targets.
• Reviewing the franchisor's financial statements with your accountant can help determine if they have the capital to support future growth.

Explanation

This risk was not identified in the FDD package. Aircraft detailing is an established service industry. However, the long-term success of any business depends on sustained consumer demand and the ability to adapt to market changes. It is important to evaluate if the business model is resilient and not dependent on temporary trends. The franchisor's commitment to research and development, disclosed in Item 11, can indicate its focus on long-term viability.

Potential Mitigations

• A business advisor can help you independently research the long-term market demand for aircraft detailing services in your specific region.
• Evaluating the franchisor's plans for innovation and service development is a crucial step in assessing the potential for long-term relevance.
• Discuss the business's resilience to economic shifts and cycles with your financial advisor.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the franchisor's principals have several years of experience operating an affiliated aircraft detailing business. However, operating a business is different from managing a franchise system. Evaluating the depth of their specific franchising experience is important, as a lack of it can affect the quality of support, training, and strategic guidance you receive.

Potential Mitigations

• A thorough review of the management team's specific experience in franchising, not just the industry, should be conducted with a business advisor.
• Asking the franchisor directly about any franchise-specific training or consultants they have engaged can provide valuable insight.
• Your attorney can help you understand the contractual obligations for support and training outlined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that RealClean is owned by a private equity firm. This type of ownership can be a risk because financial investors may prioritize short-term returns over the long-term health of the franchise system. This could lead to cost-cutting in franchisee support services or pressure to use certain vendors to increase profitability for the owners.

Potential Mitigations

• Understanding the ownership structure of any franchisor is a key piece of due diligence a business advisor can assist with.
• Should a franchisor be owned by a private equity firm, researching the firm's history with other franchise brands is recommended.
• Your attorney can review the Franchise Agreement for clauses that allow the franchisor to be sold without your consent.

Explanation

This risk was not identified in the FDD package. The franchisor does not appear to have a parent company. In cases where a franchisor is a subsidiary of a larger corporation, it is crucial that the parent company's financial information is disclosed if they guarantee the franchisor's obligations or are critical to the system's operation. Without this information, it can be difficult to assess the true financial stability and backing of the franchise system.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure to confirm the absence of an undisclosed parent entity.
• If a parent company were involved, an accountant would need to review their financial statements to assess the overall health of the system.
• Understanding any guarantees provided by a parent company is a critical review item for your attorney.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets. When a predecessor exists, it is important to review their history for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could potentially carry over to the new entity.

Potential Mitigations

• Verifying the franchisor's statement of no predecessors is a due diligence step your attorney can assist with.
• If a predecessor existed, researching their public records and history would be a prudent step for a business advisor to undertake.
• Speaking with long-term franchisees, if any, can often reveal important history about a system's origins.

Explanation

This risk was not identified in the FDD package. Item 3 states there is no litigation required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may indicate systemic problems with the franchisor's business practices, disclosure documents, or franchisee relations. Significant litigation initiated by the franchisor against franchisees can also suggest an overly aggressive relationship.

Potential Mitigations

• It is wise to have your attorney conduct an independent search for litigation beyond what is disclosed in the FDD.
• Discussing any disclosed litigation with current and former franchisees can provide valuable context.
• Understanding the nature and outcomes of any past litigation is a critical review item for your attorney.