Explanation

This risk was not identified. The FDD's Item 20 data shows a relatively stable franchise system with low turnover rates over the past three years. A high rate of franchisee terminations, non-renewals, and other cessations can indicate systemic problems such as franchisee unprofitability or poor franchisor support. The data provided for Roto-Rooter does not suggest such issues are prevalent.

Potential Mitigations

• It is still wise to contact a number of former franchisees from the list provided in Exhibit 5 to understand their reasons for leaving.
• Your accountant can help you analyze the three-year trend data in Item 20 to confirm system stability for yourself.
• A discussion with your attorney can help frame questions for current franchisees about system health and profitability.

Explanation

This specific risk was not identified. The franchise system appears mature and is slightly contracting rather than rapidly expanding, according to Item 20 data. While rapid growth can be positive, it poses the risk of the franchisor's support systems, such as training and field support, failing to keep pace with the needs of a quickly growing number of franchisees, potentially diluting the quality of support for everyone.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor’s long-term growth strategy during discussions with them.
• It is still valuable to ask current franchisees about the quality and responsiveness of the support they currently receive.
• An accountant should review the franchisor's financials to assess whether they are investing sufficiently in franchisee support systems.

Explanation

This risk was not identified in the FDD. Roto-Rooter is a very mature franchise system, having begun franchising in 1936. New or unproven systems carry higher risks because their business model may be untested, their brand has little recognition, and their management may lack experience in providing franchisee support. The extensive history and large size of the Roto-Rooter system indicate it is well-established.

Potential Mitigations

• Even with a mature system, consulting a business advisor to understand how the franchisor is adapting to current market conditions is prudent.
• Speaking with franchisees who have joined recently can provide insight into the modern onboarding and support process.
• Your attorney can help you understand how the long history of the system is reflected in the franchise agreement's terms.

Explanation

This risk was not identified. The business of sewer, drain, and pipe cleaning is a long-standing service industry with consistent demand, not a fad based on a fleeting trend. A fad business model presents a significant risk because customer interest may disappear, leaving you with ongoing contractual obligations but a non-viable business. Roto-Rooter's long operational history, as described in Item 1, confirms the sustained market for its services.

Potential Mitigations

• A business advisor can help you research the stability and long-term demand within your specific local market.
• It is still useful to ask the franchisor and current franchisees about how the business is evolving with new technology and consumer expectations.
• Your accountant can assist in developing financial projections that account for local economic cycles.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive, long-term experience with Roto-Rooter and its parent company, Chemed Corporation, or deep experience within the relevant industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate support for franchisees. The disclosed management experience here appears extensive.

Potential Mitigations

• It is still beneficial to ask current franchisees about their direct experiences with the management team's leadership and vision.
• A business advisor can help you research the public reputation of the parent company's leadership.
• Your attorney can help you understand the management structure and how decisions affecting franchisees are made.

Explanation

This risk is not present. Roto-Rooter's parent, Chemed Corporation, is a publicly-traded company, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives, which may lead to cuts in franchisee support, increases in fees, or a quick sale of the franchise system. This structure is not applicable here.

Potential Mitigations

• Your business advisor can still help you research the ownership structure and history of Chemed Corporation.
• It's always a good practice to ask your attorney to review the franchisor's rights to assign the franchise agreement to a new owner.
• An accountant's review of the public parent company's financial reports can provide insight into its long-term health and strategy.

Explanation

This risk was not identified. The FDD clearly discloses that Roto-Rooter is a subsidiary of Chemed Corporation and provides Chemed's audited financial statements and an unconditional guarantee of performance. A failure to disclose a parent company or provide its required financials can hide significant risks about the ultimate control and financial backing of the franchise system. This FDD appears to be compliant in this regard.

Potential Mitigations

• Your accountant should review the provided parent company financial statements to assess their strength.
• It is prudent to have your attorney review the wording of the parent guarantee to understand the extent of the protection it offers.
• Discussing the relationship between the franchisor and its parent with your business advisor can provide additional context.

Explanation

This risk was not identified. Item 1 discloses the franchisor's history, including its acquisition by Chemed in 1980, and notes its predecessor offered similar franchises from 1936. There are no other predecessors noted, and no negative history related to them is disclosed in Items 3 or 4. Inadequate disclosure about predecessors can hide a history of litigation, bankruptcy, or franchisee failure, preventing a full risk assessment. This does not appear to be a concern here.

Potential Mitigations

• A franchise attorney can confirm that the predecessor disclosures meet legal requirements.
• Speaking with long-tenured franchisees could provide historical context about the system's evolution under different ownership.
• A business advisor can assist in researching the public history of the franchisor and its parent company.