Explanation

This risk was not identified in the FDD package. As a new franchise system, Rust Wrangler has no history of franchisee turnover to report in Item 20. While this means there is no negative data, it also means there is no track record of franchisee success or satisfaction. High turnover in an established system can be a major red flag indicating potential systemic problems, such as lack of profitability or poor franchisor support.

Potential Mitigations

• It is crucial to have your business advisor help you assess the viability of a new system without a performance history.
• Once franchisees exist, your attorney can advise on how to interpret future Item 20 turnover data.
• An accountant can help you model different financial scenarios to account for the higher risk of an unproven system.

Explanation

This risk was not identified in the FDD package. Item 20 data shows the system is new, with only one company-owned location and no franchised outlets yet. Therefore, there is no evidence of rapid growth that could strain support resources. In more mature systems, excessively fast expansion can be a risk if the franchisor's support infrastructure does not grow at the same pace, potentially leading to inadequate assistance for franchisees.

Potential Mitigations

• Engage a business advisor to monitor the system's growth rate if you decide to invest.
• Your attorney can review the franchisor's contractual support obligations to ensure they are clearly defined.
• Speaking with an accountant can help you budget for obtaining third-party support if the franchisor's resources become strained.

Explanation

This risk was not identified in the FDD package. The business of automotive undercoating is an established service in the automotive maintenance industry and is not based on a short-term trend or fad. The long-term success of the business will likely depend more on the quality of service, marketing, and competitive positioning rather than the cyclical popularity of the concept itself.

Potential Mitigations

• A business advisor can help you analyze the long-term market demand for automotive services in your local area.
• Developing a robust local marketing plan with a marketing professional can help build a sustainable customer base.
• Your accountant can assist in creating financial projections based on the stable, rather than trendy, nature of the industry.

Explanation

This risk was not identified in the FDD package. There is no indication in Item 1 or elsewhere that Rust Wrangler is owned or controlled by a private equity firm. Franchisees in PE-owned systems can sometimes face pressures related to short-term profitability goals over the long-term health of the brand. Since this structure is not present here, this specific risk is not a factor.

Potential Mitigations

• Your attorney can help you understand the franchisor's ownership structure and any implications of a future sale.
• It is wise to have a business advisor help you research the reputation and track record of any franchise system's ownership.
• An accountant can analyze how a franchisor's capital structure might influence its operational decisions.

Explanation

This risk was not identified in the FDD package. Rust Wrangler clearly states in Item 1 that it does not have a parent company. It does, however, fully disclose its affiliate relationships with Rust Wrangler 15501, LLC (the operator of the company store) and The Berkebile Oil Company, Inc. (the product supplier). Therefore, the risk of a hidden parent entity influencing the system is not present.

Potential Mitigations

• A review of the roles and financial stability of disclosed affiliates with your accountant is always a prudent step.
• Your attorney can help confirm the corporate structure and ensure all relevant entities have been properly disclosed.
• Discuss the nature of the affiliate relationships with a business advisor to understand potential dependencies.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD clearly states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired a major part of its assets. Therefore, there is no hidden history of past business challenges, litigation, or bankruptcy associated with a prior version of the company that you need to be concerned about.

Potential Mitigations

• It's good practice to have your attorney verify the franchisor's corporate history and confirm the absence of predecessors.
• A business advisor can help you research the history of the key individuals involved in the franchise.
• An accountant can analyze the opening balance sheet to understand the franchisor's initial financial state.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This means the franchisor has not been involved in significant legal disputes with franchisees or regarding the franchise relationship. A clean litigation history is a positive sign, though it is expected for a brand-new system that has not had time to develop disputes.

Potential Mitigations

• Your attorney can perform an independent public records search to confirm the absence of litigation.
• It's beneficial to establish a clear understanding of the dispute resolution process with your legal counsel should issues arise later.
• A business advisor can help you foster a positive and communicative relationship with the franchisor from the outset.