Explanation

The FDD explicitly warns that the franchisor's financial condition calls its ability to support you into question. The parent company and guarantor, Premium Service Brands, LLC, has a significant members' deficit (negative net worth) exceeding $5.8 million and reported net losses in 2023 and 2024. This financial weakness, acknowledged by state regulators who have mandated fee deferrals, could impact the franchisor’s long-term stability and ability to provide promised services.

Potential Mitigations

• An experienced franchise accountant must perform a detailed review of the parent company's audited financial statements, including all footnotes.
• Your attorney should analyze the parent guarantee's practical value in light of the guarantor's negative net worth.
• It is wise to question the franchisor's management directly about their plans to address the ongoing losses and negative equity.

Explanation

The franchisor directly warns of a high turnover rate. Item 20 data confirms this, showing the system shrank from 11 to 4 franchised outlets between the start of 2023 and the end of 2024. A large number of these exits are categorized vaguely as 'Ceased Operations Other Reasons'. This extremely high rate of franchisee departure is a critical red flag, suggesting potential systemic problems with the business model's profitability or the franchisor's support structure.

Potential Mitigations

• Contacting a significant number of former franchisees listed in Exhibit F to understand their reasons for leaving is absolutely essential.
• A business advisor should help you press the franchisor for specific details regarding the high number of cessations and unit closures.
• Given the high historical failure rate, your accountant should help you develop extremely conservative financial projections.

Explanation

While the brand has existed since 2005 under predecessors, the current franchisor, Rubbish Works, LLC (RW LLC), only began franchising in late 2020. The system is very small, with only four active franchises at the end of 2024. This, combined with very high franchisee turnover and disclosed financial weakness under the current ownership, strongly suggests the operating model and support structure are unproven and struggling, which elevates your investment risk.

Potential Mitigations

• A business advisor should help you conduct extensive due diligence on the current management team's ability to operate this specific brand successfully.
• It is crucial to speak with all current franchisees and as many former franchisees as possible about their experiences.
• Your attorney should help you understand any liabilities that may have been assumed from the predecessors.

Explanation

The franchisor is part of a large portfolio of brands under a holding company structure typical of private equity ownership. This can create a focus on maximizing short-term investor returns, which might lead to decisions like cutting franchisee support to reduce costs, or a future sale of the brand. The Franchise Agreement gives the franchisor the right to sell the system without your consent, adding to long-term uncertainty about the ownership and philosophy of the brand.

Potential Mitigations

• A business advisor can help you research the track record of the parent company with its other franchise brands.
• Discuss with current franchisees whether they have experienced significant changes in support or strategy under the current ownership.
• Your attorney should review the assignment clause (FA §17.1) to explain your rights and risks if the brand is sold.

Explanation

While RW LLC itself has no disclosed litigation, its parent and affiliate companies under the same management have an extensive history of it. Item 3 details multiple lawsuits brought by franchisees of affiliated brands alleging fraud and misrepresentation, as well as numerous governmental enforcement actions for disclosure violations across several states. This pattern within the parent organization could indicate corporate practices or a business culture that may pose a risk to you as a franchisee.

Potential Mitigations

• It is essential that your attorney thoroughly review and explain the pattern and nature of all litigation involving the franchisor's parent and affiliates.
• These disclosures should be a key topic of discussion when you speak with current and former franchisees.
• A business advisor can help you assess the risks associated with a franchisor group that has a history of disputes with both franchisees and regulators.