Explanation

This risk was not identified. The franchise system is very new, having started franchising in 2023, and Item 20 tables show no terminations, non-renewals, or other cessations. While this means no negative history exists, it also means there is no track record to evaluate system stability or franchisee satisfaction. High turnover in other systems is often a primary indicator of systemic problems, such as lack of profitability or poor franchisor support.

Potential Mitigations

• Since no turnover data exists, speaking with the first few franchisees listed in Item 20 is critical for due diligence; your business advisor can help you prepare.
• Your accountant should help you build financial models with conservative assumptions, as there's no historical franchisee data to validate performance.
• Discuss the franchisor's franchisee selection and support process with your attorney to gauge their strategy for preventing future turnover.

Explanation

This risk was not identified as the franchise system is extremely new and has shown minimal growth. However, should the system begin to expand rapidly, a new franchisor may lack the infrastructure and resources to provide adequate support to a quickly growing number of franchisees. This can lead to diluted support quality, delayed assistance, and other operational challenges for you.

Potential Mitigations

• Your business advisor can help you question the franchisor about its specific plans and budget for scaling its support staff and infrastructure.
• During your due diligence calls with the first few franchisees, inquire about the current quality and responsiveness of franchisor support.
• An accountant should review the franchisor's financial capacity to invest in the necessary support systems ahead of future growth.

Explanation

This risk was not identified. The business model of providing strategic sales consulting and coaching is a well-established B2B service industry. It does not appear to be based on a short-term trend or fad. However, long-term success will depend on the franchisor's ability to keep its proprietary methods and content relevant and effective in a competitive and evolving sales landscape.

Potential Mitigations

• Engage a business advisor to assess the long-term demand and competitive landscape for these specific sales consulting services in your target market.
• Question the franchisor on their processes for research, development, and innovation to keep the system's offerings current.
• During due diligence calls, ask existing franchisees about the perceived value and relevance of the franchisor's methods.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is part of a corporate family, with Sales Star USA, Inc. as its parent and Sales Star Limited (New Zealand) as the ultimate parent. There is no disclosure of ownership by a private equity firm. The risks associated with private equity, such as a focus on short-term returns over franchisee health, do not appear to be present based on the provided documents.

Potential Mitigations

• Confirming the ownership structure with your business advisor is a good practice during due diligence.
• Asking your attorney to review the franchisor's rights to sell or assign the franchise agreement can help you understand future ownership risks.
• Discussing the long-term vision for the brand with the franchisor can provide insight into their operational philosophy.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose any predecessors for SalesStar. The franchisor is a newly formed entity. Therefore, there are no concerns about a hidden negative history related to a predecessor's litigation, bankruptcy, or franchisee turnover.

Potential Mitigations

• Your attorney should confirm the lack of any predecessors during their review of the FDD.
• A business advisor can help you research the history of the parent companies to understand their track record, even though they are not legal predecessors.
• Focusing your due diligence on the franchisor's current management and financial condition is key, as there is no predecessor history to analyze.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation required to be disclosed. For a new franchisor that has only recently begun selling franchises, this is expected. However, this also means there is no legal track record to evaluate how the franchisor handles disputes with its franchisees. Future litigation could provide more insight into the franchisor's practices.

Potential Mitigations

• Your attorney should confirm the 'no litigation' status and explain what types of litigation would require disclosure in the future.
• Discussing the franchisor's dispute resolution philosophy and approach with management can provide some insight.
• It is prudent to have your business advisor help you monitor for any future litigation disclosures in subsequent FDDs.