Explanation

This risk was not identified. A review of the audited financial statements in Item 21 indicates that Renue Systems Development Corp., Inc. (Renue) is financially stable, with a positive net worth, consistent revenues, and profitability over the past three years. A financially healthy franchisor is better positioned to provide support and grow the brand, which is critical for your success.

Potential Mitigations

• A qualified accountant should always be engaged to review the franchisor's financial statements, including footnotes and the auditor's opinion, for a comprehensive understanding.
• Ask your financial advisor to analyze trends in revenue, profitability, and cash flow over the three years presented to assess the company's financial trajectory.

Explanation

This risk was not identified. A review of the outlet data in Item 20 shows that the franchise system has been very stable in size over the last three years, with minimal net change in the number of operating units. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is a positive indicator.

Potential Mitigations

• A business advisor can help you evaluate a franchisor's growth plans to ensure they are sustainable and supported by adequate infrastructure.
• Always ask current franchisees about the quality and timeliness of support to gauge whether the franchisor is keeping pace with any system growth.

Explanation

This risk was not identified. The information in Item 1 indicates that the franchisor has been in business since 2000 and has been franchising under the Renue brand since 2011. This represents a long operational history and an established franchise system. An unproven system carries higher risks of failure and inadequate support.

Potential Mitigations

• Engaging a business advisor to research a franchisor's history and the maturity of its industry can provide valuable context.
• It is prudent to have your attorney review the franchisor's corporate history in Item 1 for any red flags.
• Speaking with long-term franchisees can provide insight into the system's evolution and stability.

Explanation

This risk was not identified. The franchise operates a commercial hotel cleaning business, which is an established B2B service within the hospitality industry. This type of business relies on ongoing commercial demand rather than a short-term consumer trend, reducing the risk of it being a fad that could lose market relevance.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term demand and competitive landscape for any franchise concept.
• Carefully consider the sustainability of a business model and its resilience to economic shifts with your financial advisor.
• Your attorney should review the FDD for information about the franchisor's plans for innovation and adaptation.

Explanation

This risk was not identified. The executive biographies in Item 2 show a senior management team with extensive and long-term experience. For example, the President has been in his role since 2010, and the Vice President of Operations has been with the company or its affiliates since 1993. Experienced leadership is crucial for providing effective support and strategic direction.

Potential Mitigations

• Your business advisor can assist in vetting the backgrounds of the franchisor's key management team disclosed in Item 2.
• It is beneficial to ask current franchisees about their direct experiences with the management team's competence and support.
• An attorney can help you understand the roles and responsibilities of the leadership team as outlined in the FDD.

Explanation

This risk was not identified. The FDD does not indicate that Renue is owned by a private equity firm. According to the financial statements, the company appears to be privately held by its primary shareholder. Private equity ownership can sometimes introduce a focus on short-term returns over the long-term health of the franchisees.

Potential Mitigations

• A business advisor can help you research the ownership structure of a franchisor and the track record of any parent company.
• If a franchisor is PE-owned, your attorney should review the assignment clauses in the Franchise Agreement to understand what happens if the system is sold.
• Discussing any changes in ownership with current franchisees can provide valuable insight into the impact on the system.

Explanation

This risk was not identified. Item 1 discloses an affiliate, Renue Systems, Inc., which serves as a primary supplier, and indicates it has common ownership with the franchisor. There is no mention of a parent company structure that would require separate financial disclosures. Full disclosure of all controlling entities is important for a complete risk assessment.

Potential Mitigations

• Your attorney should review the corporate structure disclosed in Item 1 to identify all relevant parent and affiliate companies.
• If a parent company's guarantee is provided, an accountant should review the parent's financial statements for stability.
• Questioning the franchisor about the roles and interactions of all affiliated companies is a key part of due diligence.

Explanation

This risk was not identified. Item 1 discloses a predecessor entity but explains it was part of a rebranding effort in 2011, where existing franchisees were converted to the current brand. The FDD does not indicate any negative history, such as bankruptcy or significant litigation, associated with this predecessor. Understanding a system's full history is important for risk assessment.

Potential Mitigations

• It is wise to have your attorney carefully review any predecessor information in Items 1, 3, and 4.
• If a system was acquired, engaging a business advisor to research the predecessor's public track record can be revealing.
• Speaking with franchisees who operated under the predecessor can provide firsthand historical context.

Explanation

This risk was not identified. Item 3 discloses only one past regulatory action from 2011 related to a pre-registration franchise offer by a prior owner of the company, with no fines paid. The FDD indicates no other disclosable litigation. A pattern of lawsuits, especially from franchisees alleging fraud, would be a significant red flag.

Potential Mitigations

• Your attorney should always carefully review the litigation history in Item 3 for any patterns of disputes with franchisees.
• Independent online searches for news or complaints about the franchisor can sometimes supplement the information provided in the FDD.
• Discussing the franchisor's relationship with its franchisees with current and former operators is a crucial due diligence step.