Explanation

This risk was not identified in the FDD package. The Item 20 tables do not show any franchisee terminations, non-renewals, or cessations of operation for the periods reported. Generally, high franchisee turnover is a critical red flag, as it can indicate systemic problems such as a lack of profitability, poor franchisor support, or an unsustainable business model. Close monitoring of this data in future FDDs is important.

Potential Mitigations

• It is a crucial step to ask current and former franchisees about their satisfaction and the reasons any franchisees have left the system.
• Your business advisor can help you calculate and analyze the franchise system's turnover rates each year.
• An attorney should review the termination and non-renewal clauses in the Franchise Agreement to understand how they might contribute to turnover.

Explanation

This risk was not identified in the FDD package. The business model, which involves selling and servicing advanced robotics for various industries, appears to be targeting a growing and long-term market rather than a short-lived trend. However, it is important to remember that even in a valid industry, a specific business concept can fail. A fad business poses a risk because its popularity may decline, leaving you with a worthless investment.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for the specific products and services offered.
• Evaluate the franchisor's commitment to research and development to ensure the system can adapt to technological and market changes.
• Your accountant can help you model the financial resilience of the business under different market trend scenarios.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives, such as the CEO and COO, have been with the affiliate, RobotLAB Inc., for many years, suggesting significant industry experience. Additionally, the franchisor has hired personnel with direct franchise experience. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate franchisee support, so this experienced team is a positive factor.

Potential Mitigations

• It is still wise to discuss the management team's accessibility and quality of support with current franchisees.
• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• Verifying the specific franchising experience of the management team is a prudent step your attorney can assist with.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned by a private equity firm. This type of ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. Since this structure is not present, this specific risk is not applicable.

Potential Mitigations

• During your due diligence, it is always a good practice to ask about the franchisor's long-term vision and goals for the company.
• An attorney can help you investigate the ownership structure of the franchisor and any parent companies.
• Your business advisor can help research the reputation and track record of any major investors in the franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. This means the business is new and does not have a history under a different corporate name or structure. While this avoids risks from a troubled predecessor, it reinforces the risks associated with a new, unproven franchise system.

Potential Mitigations

• An attorney can help you verify the corporate history to confirm there are no undisclosed predecessors.
• A business advisor can assist in researching the history of the key individuals behind the franchise.
• Asking current franchisees about the history of the brand and its development is a valuable due diligence step.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." This absence of significant litigation, particularly lawsuits from franchisees alleging fraud or misrepresentation, is a positive indicator. However, this could also be due to the franchisor's short operating history. A pattern of litigation against a franchisor can be a major red flag about its business practices.

Potential Mitigations

• An attorney can perform independent searches for litigation that may not have met the technical disclosure requirements.
• Talking with current and former franchisees can reveal disputes that did not escalate to formal litigation.
• It is important to monitor Item 3 in future FDDs for any changes.