Explanation

This risk was not identified. The data in Item 20 shows a net decrease in the total number of franchised outlets over the past two years, not rapid growth. Uncontrolled growth can strain a franchisor's ability to provide adequate support, so its absence is a positive factor, though system shrinkage presents its own challenges that should be considered.

Potential Mitigations

• Discuss the system's maturity and strategic direction with your business advisor, considering the implications of a shrinking network.
• An accountant can review the franchisor's financials to ensure resources are sufficient for supporting the existing system effectively.
• Your attorney can help interpret the franchise system's trajectory based on the detailed data provided in Item 20.

Explanation

This risk was not identified. FDD Item 1 indicates the brand has been operating for many decades, and the current franchisor has been offering franchises since 2015, with a predecessor history before that. A long operational history can suggest a more developed support system and brand recognition, which is generally a positive factor for prospective franchisees.

Potential Mitigations

• A business advisor can help you assess how the franchisor's long history impacts its current market position and competitiveness.
• An attorney should review the predecessor history in Item 1 for any potential transferred liabilities or ongoing obligations.
• Speaking with long-term franchisees can provide invaluable insight into the system's evolution and the franchisor's consistency.

Explanation

This risk was not identified. Real estate brokerage is a well-established and fundamental industry, not a business model based on a short-term trend or fad. The long-term stability of the underlying industry is a crucial factor for a franchisee to consider, as it suggests more predictable market demand over the life of the franchise agreement.

Potential Mitigations

• Engaging a business advisor to research local real estate market trends and competitive landscape is always a prudent step.
• An accountant can help you model financial performance based on historical real estate market cycles and data.
• Your attorney can review the franchise agreement for any clauses that might affect your business operations during market downturns.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the key management team, showing that the executives generally have many years of experience within the real estate industry and with the Realty Executives brand itself. Experienced leadership can be a significant advantage in providing effective support and strategic direction for the system.

Potential Mitigations

• When speaking with current franchisees, it is still valuable to inquire about their direct experiences with the management team's responsiveness and strategic vision.
• A business advisor can help you research the public reputation and track record of the key executives.
• Your attorney can help confirm if there has been any recent, undisclosed turnover in key management positions.

Explanation

This risk was not identified, as the franchisor clearly discloses its parent companies in Item 1. While the parent company's financial statements are not included, they are not strictly required by disclosure rules unless the parent guarantees the franchisor's obligations or meets other specific criteria. Transparent disclosure of the corporate structure is a positive indicator.

Potential Mitigations

• Your accountant should evaluate the franchisor's standalone financial statements for any signs of dependency on its parent company.
• An attorney can help determine if the parent company's role necessitates the inclusion of its financial statements under FTC rules.
• Asking the franchisor about the role and financial health of the parent is a reasonable due diligence question for your business advisor to explore.

Explanation

This specific risk was not identified. Item 1 discloses a predecessor from which the current franchisor acquired assets, and there are no disclosed issues like bankruptcy or significant litigation associated with that predecessor entity in Items 3 and 4. A clean predecessor history reduces the risk of inheriting past systemic problems or undisclosed liabilities.

Potential Mitigations

• Speaking with long-term franchisees who operated under the predecessor can offer valuable historical context.
• An attorney can confirm the nature of the asset purchase transaction to ensure no undisclosed liabilities were transferred.
• Your accountant can review the opening balance sheet of the current franchisor for any inherited financial issues from the transaction.