Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system has been stable or slightly shrinking in unit count over the past three years, not growing at a pace that might strain support systems. Rapid growth can sometimes stretch a franchisor's resources, potentially leading to inadequate assistance for new franchisees. However, that does not appear to be a concern here.

Potential Mitigations

• Discussing the franchisor's strategic growth plans and their capacity to support all units can provide valuable insight; a business advisor can help frame these questions.
• Your attorney should review the franchisor’s support commitments in the Franchise Agreement to ensure they are clearly defined.
• In conversations with existing franchisees, inquire about their satisfaction with the current level and quality of franchisor support.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor and its affiliated brands have been operating and franchising for several decades. This is an established company with a long history in the rent-to-own industry, not a new or unproven startup. An unproven system would present higher risks regarding the viability of the business model and the adequacy of its support structures.

Potential Mitigations

• A business advisor can still help you evaluate the long-term health and competitiveness of this mature business model in the current market.
• Even with a proven system, having your accountant review the franchisor's recent financial performance over the last few years is a prudent step.
• Your attorney should confirm that all disclosures related to the company's long history and predecessors are complete and consistent.

Explanation

This risk was not identified in the FDD. The rent-to-own industry, offering furniture, electronics, and appliances, has been an established market sector for many years. The business model is not based on a recent or fleeting trend. A fad business carries the risk that consumer interest could decline sharply, potentially leaving you with a worthless business even though you are still bound by a long-term franchise agreement.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm sustained consumer demand for rent-to-own services in your specific area.
• Reviewing the franchisor’s plans for future innovation and adaptation with your business advisor can offer insight into their long-term vision.
• Your accountant can help you assess the business model's resilience to economic shifts and changing consumer spending habits.

Explanation

This risk was not identified in the FDD. Item 2 shows that the key executives and directors have extensive and long-term experience within RAC Franchising, its parent company, or the rent-to-own industry. A lack of relevant management experience could otherwise pose a risk to the quality of support, training, and strategic direction provided to you.

Potential Mitigations

• When speaking with current franchisees, it's still a good practice to ask about their perception of the management team's competence and accessibility.
• Your business advisor can help you research the public reputation and track record of the key personnel listed in Item 2.
• Your attorney can confirm that the experience disclosed in Item 2 aligns with the support obligations outlined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD. Item 1 indicates that the ultimate parent company is Upbound Group, Inc., which is a publicly-traded company (NASDAQ: UPBD). The franchisor is not owned by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term investment horizons that may not align with the long-term health of franchisees.

Potential Mitigations

• An accountant can help you analyze the financial reports of the public parent company to understand its financial health and strategic priorities.
• Your business advisor can help you research the parent company's history and its management of other subsidiary brands, if any.
• Even without PE ownership, your attorney should review the assignment clauses in the Franchise Agreement to understand how a sale of the company could affect you.

Explanation

This risk was not identified in the FDD. Item 1 clearly discloses the franchisor's parent companies, including the ultimate public parent, Upbound Group, Inc. The corporate structure is outlined, and the franchisor does not appear to be a thinly capitalized subsidiary whose risks are being hidden by a lack of parent disclosure. Proper disclosure of parent companies is vital for assessing the full scope of the enterprise you are joining.

Potential Mitigations

• Your attorney can verify the corporate structure and ensure all relevant parent and affiliate relationships are properly disclosed.
• An accountant should review the provided financial statements (Exhibit C) to assess the franchisor's own financial standing, independent of its parent.
• It is wise to discuss the nature of the parent-subsidiary relationship and its impact on franchisee support with current franchisees.

Explanation

This risk was not identified in the FDD. Item 1 provides information on the franchisor's corporate history, including its predecessor name, ColorTyme, Inc. The document does not appear to be hiding or obscuring a problematic history with a prior company. A failure to disclose a predecessor's history could hide underlying issues with the franchise system, such as past litigation or high failure rates.

Potential Mitigations

• Your attorney can help you review the disclosures in Items 1, 3, and 4 for any information related to predecessors.
• It can be beneficial for a business advisor to help you research the public history of any named predecessor companies for additional context.
• When speaking with long-tenured franchisees, asking about their experience under any previous ownership or brand name is a good practice.