Restoration 1 Logo

Restoration 1

Restoration 1 Franchise Holding, LLC
https://www.restoration1.com
1-800-933-0803
2929 Carlisle St., Suite 100, Dallas, Texas 75204

Initial Investment Range

$18,350 to $309,500

Franchise Fee

$14,025 to $64,925

We offer franchises for businesses providing residential and commercial water, fire, smoke, and mold restoration services.

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Restoration 1 April 30, 2025 FDD Risk Analysis

Free FDD Library AI Analysis Date: July 16, 2025

DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.

1

Franchisor Stability Risks

Start Here
Total: 10
4
2
4

Disclosure of Franchisor's Financial Instability

High Risk

Explanation

The franchisor's audited 2023 and 2024 financial statements show recurring net losses and a significant working capital deficit. As of year-end 2024, current liabilities greatly exceeded current assets, largely due to a major debt payment of over $27 million due in March 2025. This financial condition could suggest a risk to the franchisor's ability to provide long-term support, invest in the system, or meet its obligations, potentially relying on new franchise sales for cash flow.

Potential Mitigations

  • A franchise accountant should thoroughly analyze all financial statements, including footnotes and the auditor's report, to assess the franchisor's financial viability.
  • Discuss the franchisor's capitalization and plans to manage its debt and profitability with your financial advisor.
  • It is important to have your attorney review any financial assurance mechanisms like state-required bonds or escrow, if they exist.
Citations: Item 21, Exhibit E

High Franchisee Turnover

High Risk

Explanation

Item 20 data reveals a notable rate of franchise terminations, with 24 in 2024 and 15 in 2023. Critically, a footnote discloses that an additional 18 franchised outlets have ceased operations since the end of the last fiscal year (in early 2025). This combination of terminations and recent cessations represents a very high rate of outlets leaving the system, which could indicate potential franchisee dissatisfaction, lack of profitability, or other systemic issues.

Potential Mitigations

  • Your attorney should help you formulate questions for the high number of former franchisees listed in Exhibit F to understand their reasons for leaving.
  • It is vital to have your accountant analyze the turnover rates over the past three years to assess system stability.
  • A business advisor can help you evaluate whether this high turnover rate presents an unacceptable risk to your investment.
Citations: Item 20, Exhibit F

Rapid System Growth

Medium Risk

Explanation

The system is experiencing significant churn, with a high number of units opening (29 in 2024) while many others are being terminated (24 in 2024) or ceasing operations. This pattern, combined with the franchisor's reported financial losses, may suggest a business model that is heavily focused on selling new franchises rather than ensuring the long-term success and stability of existing ones. This churn could strain the franchisor's support resources for new and existing franchisees.

Potential Mitigations

  • A business advisor can help you assess if the franchisor's support infrastructure is adequate for the number of new units being opened.
  • Speaking with both new and established franchisees from the list in Exhibit F is crucial to gauge the current quality of support.
  • Your accountant should review the franchisor's financials to determine if they are investing sufficiently in franchisee support systems relative to their growth.
Citations: Items 20, 21

New/Unproven Franchise System

Low Risk

Explanation

This specific risk was not identified in the FDD Package. The franchisor's predecessor began offering franchises in 2010, indicating the system has been in operation for over a decade. An unproven system can be risky because its business model, brand recognition, and support structures have not withstood the test of time, potentially leading to higher failure rates. However, this does not appear to be the case here.

Potential Mitigations

  • Even with a mature system, consulting with a business advisor to understand the brand's current market position is a prudent step.
  • Your accountant can review the financial statements to confirm the franchisor's operational history and stability over several years.
  • It is still advisable to ask your attorney to review the FDD for any signs of recent, fundamental changes that could make the system newly risky.
Citations: Not applicable

Possible Fad Business

Low Risk

Explanation

This risk was not identified. The business, which provides water, fire, and mold restoration services, operates in a well-established and needs-based industry. A fad business is one tied to a fleeting trend, which carries the risk of collapsing consumer demand after an initial surge, potentially leaving you with a worthless business. Restoration services, however, are consistently required due to property damage incidents, suggesting long-term market viability.

Potential Mitigations

  • A business advisor can help you conduct independent market research to confirm the long-term demand for restoration services in your area.
  • Reviewing the franchisor's history and service offerings with an industry expert can provide additional confidence in the business model's stability.
  • Your attorney should still review the franchise agreement for any terms that might limit your ability to adapt if the market were to change.
Citations: Not applicable

Inexperienced Management

Medium Risk

Explanation

Item 2 reveals that several key executives, including the CEO, Senior VP of Marketing, and VP of Franchise Development, have been in their current roles for only a few months as of the FDD issuance date. Such a significant and recent turnover in top leadership could create instability, shifts in strategy, or disruptions in the support you receive as a franchisee. A new management team may need time to become effective, which could pose a risk to your business.

Potential Mitigations

  • It would be wise to research the backgrounds of the new executive team to understand their prior experience in franchising and the restoration industry.
  • A business advisor can help you formulate questions for the franchisor regarding the reasons for the management changes and their vision for the future.
  • Speaking with current franchisees about their perspective on the new leadership team and any changes in support is highly recommended.
Citations: Item 2

Private Equity Ownership

High Risk

Explanation

Item 1 discloses a complex parent ownership structure involving multiple LLCs, including MPK Equity Partners, which is indicative of private equity (PE) ownership. PE ownership can create risks, as decisions may prioritize short-term returns for investors over the long-term health of franchisees. This could manifest as increased fees, reduced support to cut costs, or a focus on rapid franchise sales. The financial instability and high turnover noted elsewhere could be related to this ownership structure.

Potential Mitigations

  • A business advisor can help you research the private equity firm's track record with other franchise concepts.
  • Discussing the impact of the PE ownership with current franchisees could provide valuable insight into any changes in the system's culture or support.
  • Your attorney should carefully review the franchisor's right to sell the system and the implications for you if a new owner takes over.
Citations: Item 1, Item 21

Non-Disclosure of Parent Company

Low Risk

Explanation

This specific risk was not identified. The franchisor's parent entities are disclosed in Item 1, and the provided financial statements in Item 21 are for the franchisor entity itself. The FDD does not indicate that a parent company guarantees the franchisor's obligations. When a franchisor is a thinly capitalized subsidiary, the failure to provide parent company financials can hide the true financial health and backing of the system. However, that does not appear to be the case here.

Potential Mitigations

  • Your accountant should always confirm that the financial statements provided are for the correct legal entity that you are contracting with.
  • It is good practice to have your attorney verify the corporate structure and identify any affiliated entities that could impact your business.
  • If a parent company were to provide a guarantee, your attorney should ensure that the guarantee is a formal, written document.
Citations: Not applicable

Predecessor History Issues

Low Risk

Explanation

Item 1 discloses a predecessor entity, and Item 3 reveals this predecessor was involved in several franchisee-initiated arbitrations between 2015 and 2016 alleging misrepresentation and unfair trade practices. While these legal actions are from nearly a decade ago, they are part of the system's history and suggest past issues with franchisee relations and disclosure practices. Understanding this history provides context for the overall health and conduct of the franchise system over time.

Potential Mitigations

  • Your attorney should review the details of this past litigation to understand the nature of the historical disputes.
  • A discussion with long-term franchisees who were in the system during that period could provide valuable historical context.
  • A business advisor can help you assess whether the current management and systems have adequately addressed these past issues.
Citations: Items 1, 3

Pattern of Litigation

High Risk

Explanation

Item 3 discloses a history of franchisee-initiated legal actions for misrepresentation and fraud between 2015-2016. More importantly, there is a significant and recent (2023) lawsuit where the franchisor is suing a former franchisee, who has filed a counterclaim seeking over $3 million for wrongful termination. This pattern of past and present litigation, especially allegations of misrepresentation and a high-stakes pending dispute, indicates a significant risk of franchisee conflict and potential issues in the franchisor-franchisee relationship.

Potential Mitigations

  • It is critical that your attorney thoroughly review the allegations, status, and outcomes of all litigation disclosed in Item 3.
  • You should consider this history of disputes a significant red flag when evaluating the franchise opportunity.
  • A business advisor can help you assess the operational risks that might lead to such frequent and serious disputes.
Citations: Item 3
2

Disclosure & Representation Risks

Total: 13
7
1
5

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

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3

Financial & Fee Risks

Total: 10
4
4
2

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

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4

Legal & Contract Risks

Total: 16
8
5
3

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

5

Territory & Competition Risks

Total: 5
4
0
1

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

6

Regulatory & Compliance Risks

Total: 10
5
3
2

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

7

Franchisor Support Risks

Total: 4
2
2
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

8

Operational Control Risks

Total: 11
4
4
3

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

9

Term & Exit Risks

Total: 18
11
4
3

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

10

Miscellaneous Risks

Total: 2
2
0
0

Example Risk: Franchisee Financial Obligations

Blue Risk

Explanation

This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.

Potential Mitigations

  • Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
  • Conduct regular risk assessments
  • Implement monitoring and reporting systems

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.