Explanation

This risk was not identified in the FDD package. Item 20 data does not indicate high franchisee turnover, with no terminations, non-renewals, or business cessations reported in the last three fiscal years. Generally, high turnover can signal systemic problems, such as unprofitability or poor franchisor support, so it is a crucial area for due diligence in any franchise system.

Potential Mitigations

• It is always a good practice to speak with current and former franchisees, whose contact information is in Item 20, about their experiences.
• Your business advisor can help you formulate questions regarding franchisee satisfaction and profitability.
• Discussing system stability and franchisee success rates with your attorney is also a recommended step.

Explanation

This risk was not identified. Romp n' Roll has been offering franchises since 2006, as stated in Item 1, indicating it is an established system. For new or unproven systems, there are often higher risks related to the business model's viability, brand recognition, and the franchisor's ability to provide effective support, which requires careful vetting by prospective franchisees.

Potential Mitigations

• When evaluating any franchise, new or established, having your business advisor assess the management team's experience is a wise precaution.
• A discussion with your attorney regarding the system's history and track record is always recommended.
• An accountant's review of the financial statements can provide insight into the company's maturity and stability.

Explanation

This risk does not appear to be present. The business model, focused on children's recreational and enrichment classes, operates in an established market segment rather than one based on a short-term trend. When considering any franchise, it is important to assess if the core product or service has long-term consumer demand to avoid investing in a potential fad.

Potential Mitigations

• A business advisor can help you research the long-term market trends for children's enrichment services in your specific area.
• Analyzing local demographics and competition is a prudent step before investing.
• Your financial advisor can help assess the business model's resilience to economic shifts.

Explanation

This risk was not identified. Item 2 shows the co-founders have been with the company and its affiliates since 2004, indicating significant experience. However, Item 1 states that the franchisor entity itself has not operated a business of the type being franchised, relying instead on affiliate experience. This distinction could mean the franchisor entity itself lacks direct operational expertise, although its leaders have it.

Potential Mitigations

• It is important to discuss with your attorney the potential implications of the franchisor entity lacking direct operational experience.
• You should speak with current franchisees about the quality of operational guidance they receive from the management team.
• A business advisor can help you assess whether the affiliate experience is a sufficient substitute for direct franchisor experience.

Explanation

The FDD 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 profitability over the long-term health of the franchise system, potentially affecting franchisee support and fees. Therefore, understanding the ownership structure is an important part of franchise due diligence.

Potential Mitigations

• Confirming the ownership structure and any plans for future sale of the company is a prudent step your attorney can take.
• Engaging a business advisor to research the background and reputation of the franchisor's owners is always recommended.
• Discussing the potential impacts of a future sale of the system should be part of your legal review.

Explanation

This specific risk was not identified, as Item 1 states the franchisor does not have a parent company. It is important for a franchisee to understand the full corporate structure, as the financial stability and operational decisions of a parent company can significantly impact the franchisor. Failure to disclose a required parent can obscure major risks.

Potential Mitigations

• A review of the company's corporate structure with your attorney can help verify the information presented in the FDD.
• Your accountant should analyze the financial relationship between the franchisor and any disclosed affiliates.
• It is beneficial to understand the role and influence of any affiliated companies with the help of your business advisor.

Explanation

This risk was not identified, as Item 1 of the FDD states that the franchisor has no predecessors. A prospective franchisee should always be aware of any predecessor history, as it can reveal important information about the franchise system's track record, including past litigation, bankruptcies, or franchisee turnover that might not be apparent from the current franchisor's data alone.

Potential Mitigations

• Your attorney can help verify the corporate history of the franchisor to ensure no predecessor information has been omitted.
• Researching the brand's history online can sometimes reveal information about previous owners or structures; your business advisor can assist.
• Discussing the system's origins with long-term franchisees is also a good due diligence step.

Explanation

This risk was not identified, as Item 3 of the FDD states there is no litigation that requires disclosure. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or breach of contract, can be a significant red flag indicating systemic problems within a franchise. Reviewing Item 3 is a critical step in assessing the health of the franchisor relationship.

Potential Mitigations

• Your attorney should always carefully review the litigation disclosures in Item 3 of any FDD.
• It can be beneficial to conduct independent searches for litigation involving the franchisor, as not all disputes may meet the criteria for disclosure.
• Asking current and former franchisees about their experiences with disputes is an important part of due diligence.