Explanation

This risk was not identified in the FDD package. Rapid growth can be a positive sign, but it can also strain a franchisor's ability to provide adequate support to its franchisees. A system expanding too quickly may struggle with training, site selection, and ongoing operational assistance, potentially leaving new franchisees without the guidance they need to succeed.

Potential Mitigations

• Ask the franchisor about their plans for scaling support infrastructure to match unit growth; your business advisor can help assess their capacity.
• In discussions with current franchisees, inquire about the quality and responsiveness of the franchisor's support system.
• Your accountant should review the franchisor's financials in Item 21 to assess if they appear to have the resources to support their growth.

Explanation

This risk was not identified in the FDD package. The franchisor and its parent company appear to have a long operating history in the rent-to-own industry. When considering a new franchise, it is important to assess the system's track record and brand recognition. An unproven concept carries higher risk, as its market viability and long-term profitability have not yet been established.

Potential Mitigations

• A thorough due diligence process should be conducted with your business advisor to vet the experience of the franchisor's management team.
• Speaking with the earliest franchisees in a system can provide valuable insight into its evolution and the franchisor's learning curve.
• Your attorney can help you negotiate more favorable terms to compensate for the higher risk associated with a newer, less established franchise system.

Explanation

This risk was not identified in the FDD package. The rent-to-own industry is established and does not appear to be a short-term fad. However, it's always wise to assess the long-term viability of any business concept. A business based on a fleeting trend could leave you with a long-term contractual obligation long after consumer interest has faded, posing a significant threat to your investment.

Potential Mitigations

• An independent assessment of the long-term market demand for the core products and services should be conducted with your business advisor.
• Evaluating the franchisor's plans for innovation, adaptation, and staying relevant is a key part of due diligence.
• Consider the business model's resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

This risk was not identified in the FDD package. The management team, as described in Item 2, appears to have significant experience in the rent-to-own and franchising industries. A lack of relevant experience in a franchisor's leadership can be a major red flag, as it may signal an inability to provide effective support, training, and strategic direction for the franchise system.

Potential Mitigations

• Your business advisor can help you thoroughly vet the backgrounds of the key management personnel listed in Item 2.
• Speaking with existing franchisees about the quality of management's support and guidance provides a real-world perspective.
• Ensure the management team has experience not just in the industry, but specifically in managing a franchise system.

Explanation

This risk was not identified in the FDD package, as the parent company is publicly traded, not a private equity firm. Private equity ownership can introduce risks, as their focus may be on short-term returns rather than the long-term health of the franchisees. This could lead to decisions like increased fees, reduced support, or a quick sale of the system, creating instability for franchisees.

Potential Mitigations

• Researching a private equity firm's track record with other franchise systems is a crucial step for your business advisor.
• Discuss with existing franchisees any changes in the system's direction or support levels since a potential PE acquisition.
• Your attorney should analyze the franchisor's right to sell the system and what protections you might have in such an event.

Explanation

This risk was not identified in the FDD package. The document provides a history of the franchisor entity, including its formation and name changes. When a franchisor has predecessors, it is important to understand their history, including any past litigation, bankruptcy, or high franchisee turnover. This information provides a more complete picture of the system's lineage and potential inherited challenges.

Potential Mitigations

• Your attorney should carefully review Item 1 of the FDD for any mention of predecessors and their history.
• If a predecessor is identified, independent research into its track record can provide valuable context.
• Asking long-term franchisees about their experiences under any previous ownership is a key part of due diligence.