Explanation

This risk was not identified in the FDD Package. The data in Item 20 indicates the system's growth has been very slow, not rapid. Rapid growth can strain a franchisor's resources, potentially leading to inadequate support for franchisees. It's a risk to monitor if the franchisor's growth accelerates in the future.

Potential Mitigations

• It is wise to ask the franchisor about their future growth plans and how they intend to scale support systems.
• A discussion with your business advisor about the ideal growth pace for a franchise system of this size can provide valuable context.
• Your accountant can help assess if the franchisor's financial statements indicate readiness for future expansion.

Explanation

This risk was not identified in the FDD Package. The residential cleaning industry is mature and well-established, not typically considered a fad. A fad business is one tied to a fleeting trend, which poses a risk of declining consumer interest over the long term, potentially leaving franchisees with an obsolete business model even if their contractual obligations continue.

Potential Mitigations

• It is prudent to have a business advisor help you research the long-term stability and consumer demand within the local residential cleaning market.
• Discuss the company's strategies for innovation and staying competitive with the franchisor and existing franchisees.
• Your financial advisor can help model the business's resilience to various economic conditions.

Explanation

This risk was not identified in the FDD Package, as there is no disclosure of ownership by a private equity firm. When a franchisor is owned by a private equity firm, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of the franchisees and the brand, which could affect support levels and fee structures.

Potential Mitigations

• Your attorney can help you verify the franchisor's ownership structure as disclosed in Item 1.
• Engaging a business advisor to research a private equity firm's history with other franchise brands is a key due diligence step if one is involved.
• It is always wise to discuss any ownership changes with existing franchisees.

Explanation

This risk was not identified in a significant way. Item 1 discloses the existence of an affiliate, Canama LLC, that operates franchise locations. However, the affiliate does not guarantee the franchisor's obligations, and the franchisor's own audited financial statements are provided. In some cases, a franchisor might be a thinly capitalized subsidiary, making the parent company's financial health critical, but that does not appear to be the primary structure here.

Potential Mitigations

• Your accountant should review the affiliate relationship described in the FDD and the provided financials.
• An attorney can help clarify the legal and financial separation between the franchisor and its parent or affiliate companies.
• Always confirm that the entity you are contracting with is the one whose financials are presented in Item 21.

Explanation

This risk was not identified in the FDD Package. The franchisor does not disclose any predecessors in Item 1. A predecessor is a company from which the franchisor acquired the business or that previously offered franchises for the same system. Reviewing a predecessor's history of litigation, bankruptcy, or franchisee turnover is important for understanding the full background of the franchise system you are joining.

Potential Mitigations

• Your attorney can help you confirm the franchisor's corporate history as disclosed in Item 1.
• A business advisor can assist with independent research on the company's background if there are any concerns.
• Asking long-term franchisees about the history of the brand and any previous ownership structures can provide useful context.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. Likewise, a high number of lawsuits initiated by the franchisor against franchisees might suggest an overly aggressive or litigious culture.

Potential Mitigations

• It's a good practice to have an attorney conduct an independent search for litigation involving the franchisor, beyond what is disclosed in Item 3.
• Discussing any past or pending legal disputes with current and former franchisees can provide valuable insight.
• Your attorney can help you understand the significance of any litigation that is disclosed.