Explanation

This risk was not identified in the FDD package. Rapid system growth can be a concern if a franchisor's support infrastructure cannot keep pace. This can lead to diluted support, poor site selection assistance, and a decline in overall quality as the franchisor struggles to manage its expansion. In this case, the system is contracting rather than growing rapidly, so this specific risk is not present.

Potential Mitigations

• A business advisor can help you evaluate whether a franchisor's growth rate is sustainable and supported by its internal resources.
• Discussing the quality of support with franchisees who joined at different stages of the system's growth can provide valuable insight.
• Your accountant should review the franchisor's financials to assess if investment in support infrastructure is keeping pace with unit growth.

Explanation

This risk was not identified in the FDD package. SafeSplash Brands, LLC (SafeSplash) began franchising in 2014 and, as of the end of 2024, had 91 franchised outlets in operation. The system has a multi-year operational track record and cannot be characterized as new or unproven, although its recent performance raises other stability concerns. A new system would present higher risks due to an unverified business model and lack of established brand recognition.

Potential Mitigations

• When evaluating a newer system, consulting with a business advisor to scrutinize the founders' industry and franchising experience is critical.
• An accountant can assess if a new franchisor is adequately capitalized to survive the early stages and support its first franchisees.
• Your attorney might negotiate more franchisee-favorable terms to compensate for the higher risks associated with an unproven brand.

Explanation

This risk was not identified in the FDD package. The business of offering “learn to swim” programs for children and adults is a well-established service industry with long-term, consistent consumer demand. It is not dependent on a fleeting trend or novelty, which would otherwise present a risk of declining public interest that could jeopardize the long-term viability of your investment.

Potential Mitigations

• For trendy concepts, a business advisor can help you conduct independent market research to assess long-term consumer demand.
• Evaluating a franchisor's commitment to research and development can reveal its strategy for staying relevant beyond an initial trend.
• An accountant should be consulted to model the financial impact if a trend-based business experiences a rapid decline in sales.

Explanation

This risk was not identified in the FDD package. The executive team described in Item 2 has significant prior experience in senior roles at large, well-known companies and franchise systems such as 7-Eleven, Cracker Barrel, and GameStop. The training manager has over two decades of experience in the swimming industry and has been with the company or its affiliate for over 10 years. The management team appears to be experienced.

Potential Mitigations

• Always have a business advisor help you scrutinize the backgrounds of the key management team listed in Item 2 for relevant industry and franchising experience.
• Contacting existing franchisees is a good way to gauge the real-world effectiveness and competence of the franchisor's support team.
• If management is new to franchising, your attorney can help you inquire if they have retained experienced franchise consultants.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the franchisor’s parent entities, Youth Enrichment Brands, LLC (YEB), and its affiliation with Roark Capital Management. While the parent company's financials are not provided, the FDD does disclose the critical fact that SafeSplash has guaranteed the parent's debt. Therefore, the risk lies with the guarantee itself, not with a failure to disclose the parent's existence.

Potential Mitigations

• Your attorney should verify the corporate structure and identify all parent and affiliate companies that may influence the franchise.
• If a parent company provides a guarantee for the franchisor's obligations, an accountant should review the parent's financial statements.
• It is wise to have a business advisor investigate the reputation and operational history of any parent company.