Explanation

This risk was not identified in the FDD package. Item 20 data indicates the franchise system has recently been contracting, not expanding rapidly. Rapid growth can be a risk because a franchisor's support systems, such as training, site selection, and operational coaching, may fail to keep pace with the needs of a quickly expanding franchisee base. This can lead to a decline in service quality and franchisee support across the system.

Potential Mitigations

• A business advisor can help you evaluate a franchisor's growth rate in the context of their support staff and financial resources.
• When speaking with existing franchisees, it is useful to ask about their perception of the quality and timeliness of franchisor support.
• Your accountant should review the franchisor's financial statements to assess if they have the capitalization to properly support their existing and planned units.

Explanation

This risk was not identified in the FDD package. SafeSplash Brands, LLC (SafeSplash) began franchising in 2014, and its affiliate has operated similar businesses since 2006, indicating it is an established system. Investing in a new or unproven franchise system carries higher risk because the business model, brand recognition, and franchisor's ability to provide support have not yet been validated over time. Success often depends heavily on the franchisor learning and adapting in the early stages.

Potential Mitigations

• For any franchise, especially a newer one, having your business advisor research the industry and the specific market niche is a crucial step.
• It is always wise to ask your attorney to scrutinize the experience of the management team as detailed in Item 2.
• An accountant can help assess whether a young franchisor has sufficient capital to sustain operations and support franchisees.

Explanation

This risk was not identified in the FDD package. The business of offering 'learn-to-swim' programs is an established service industry with consistent demand, not a business based on a short-term trend or fad. A fad-based business carries the risk that consumer interest could decline quickly, potentially leaving you with a long-term contractual obligation for a business with a collapsed market, even if it was initially popular.

Potential Mitigations

• A business advisor can help you conduct independent market research to verify long-term consumer demand for any franchise concept.
• Evaluating the franchisor's plans for innovation and adaptation to changing market tastes is always a prudent step.
• Discussing the long-term sustainability of the business model with your financial advisor can help you avoid investing in a potential fad.

Explanation

This risk was not identified in the FDD package. The executives detailed in Item 2 have extensive prior experience in managing large, well-known franchise systems such as 7-Eleven, Neighborly, and Cracker Barrel, in addition to their experience with this brand. Inexperienced management can be a significant risk, as it may lead to weak operational systems, inadequate franchisee support, and poor strategic decisions that can jeopardize the entire franchise network.

Potential Mitigations

• It's always recommended to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Interviewing existing franchisees provides valuable insight into their direct experiences with the management team's competence and responsiveness.
• An attorney can help assess whether the management team's experience is relevant to the specific industry and the challenges of franchising.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the franchisor's parent companies, including SafeSplash Holdings, LLC, Streamline Holdings, LLC, and Youth Enrichment Brands, LLC. A failure to disclose a parent company can be a significant issue, as it may hide the true ownership structure, financial stability, and controlling interests behind the franchisor, preventing you from conducting a complete risk assessment.

Potential Mitigations

• Always have your attorney review Item 1 and any related corporate documents to ensure the ownership structure is clear.
• If a parent company guarantees the franchisor's performance, your accountant should insist on reviewing the parent's financial statements.
• A business advisor can help investigate the reputation and track record of any disclosed parent companies.