Explanation

The franchisor, Resting Rainbow Pet Memorials and Cremation Franchise, LLC (Resting Rainbow), is a new entity with a recent net loss and minimal profit. Financial statement notes in Exhibit A reveal three franchisees are backing out, creating a $203,000 liability for refunded fees. Furthermore, state regulators have imposed fee deferrals due to inadequate capitalization, as noted in Exhibit I. These factors raise significant questions about the franchisor's financial stability and ability to support you.

Potential Mitigations

• A franchise accountant must thoroughly analyze the audited financial statements, paying close attention to cash flow, liabilities, and all footnotes.
• Discuss the franchisor's capitalization and the implications of the franchisee refunds with your financial advisor.
• Your attorney should review the state-mandated fee deferral conditions to understand the protections they may offer.

Explanation

Item 20 data reveals a critical issue: as of year-end 2024, 15 franchise agreements had been signed, but only one outlet was operational. This high ratio of signed-but-unopened franchises is a major red flag. The financial statements confirm this problem, noting that three franchisees are backing out and are owed $203,000 in refunds. This situation may indicate systemic issues with site selection, financing, or franchisee confidence, representing a significant risk to your own opening timeline and success.

Potential Mitigations

• It is crucial to contact the franchisees listed in Item 20, especially those who signed agreements but have not opened, to understand the reasons for the delays.
• A business advisor can help you assess the systemic risks suggested by this high number of unopened units.
• Your attorney should help you understand the potential consequences if you also face significant delays in opening.

Explanation

The franchisor is new, having started in 2023, and shows extremely aggressive growth plans in Item 20, projecting 20 new outlets in the next year despite having only one open. This rapid expansion, combined with its limited operating history and the financial concerns noted in Item 21, suggests its support infrastructure could be easily overwhelmed. This may compromise the quality and availability of training, site selection assistance, and ongoing operational support for new franchisees like you.

Potential Mitigations

• A business advisor can help you question the franchisor about their specific plans to scale support staff and systems to match this projected growth.
• Speaking with the currently operating franchisee is essential to gauge the current level of support provided.
• Your accountant should review the financials to assess if the company has the resources to sustain such rapid growth.

Explanation

Resting Rainbow is an emerging franchisor, formed in May 2023 with only one franchised unit open as of the FDD date. The business model's viability in a franchise context is largely unproven. Key risks include an underdeveloped operational system, as evidenced by the Operations Manual being 'still under construction' per Item 11, and limited brand recognition. Investing in such a new system carries inherently higher risks of operational challenges and potential system failure compared to established brands.

Potential Mitigations

• Engaging a business advisor to conduct extensive due diligence on the viability of this new system is highly recommended.
• It is essential to speak with the single operating franchisee and those who have signed agreements to understand their experiences and confidence levels.
• Your attorney might be able to negotiate more favorable terms, such as enhanced support commitments, to compensate for the higher risk.

Explanation

The franchisor's CEO, in place since January 2024, has a background in healthcare revenue services, not pet cremation or franchising. Furthermore, Item 4 discloses the CEO's personal Chapter 7 bankruptcy, discharged in May 2023. While the company president has experience with an affiliated company, the newness of the franchise system and the CEO's background and personal bankruptcy history create risks related to leadership stability and the quality of strategic guidance and support you may receive.

Potential Mitigations

• A business advisor can help you thoroughly vet the backgrounds of all key management team members.
• Speaking with current and former franchisees, if possible, can provide insight into the management team's effectiveness and support.
• Your attorney should consider the implications of the CEO's recent bankruptcy on the overall risk profile of the investment.