Explanation

This risk was not identified in the FDD. The data in Item 20's tables shows no terminations or cessations of franchised outlets for other reasons over the last three years, and only one non-renewal. This low rate of turnover is a positive indicator of system stability and franchisee satisfaction. High turnover can often signal systemic problems, so its absence here is favorable.

Potential Mitigations

• Your business advisor can help you calculate the transfer rate from Item 20 data, as high transfers can sometimes mask distressed sales.
• Engaging with a significant number of current and former franchisees from the lists in Item 20 is a crucial step to verify the reasons for any departures.
• Your attorney should advise you to ask the franchisor about the circumstances surrounding the single non-renewal.

Explanation

The FDD discloses steady and significant system growth, with the number of franchised outlets increasing from 107 to 152 over the past three years. The franchisor's financial statements show profitability and capacity to support this expansion. Therefore, the typical risks associated with overly rapid growth, such as strained support systems, do not appear to be a primary concern based on the provided documents.

Potential Mitigations

• When speaking with franchisees, it is useful to ask both new and established operators about their perception of the quality and timeliness of franchisor support.
• Your business advisor can help you evaluate the franchisor's staffing and infrastructure in relation to its growth rate.
• An accountant can review the franchisor's investments in support systems to gauge its commitment to managing growth effectively.

Explanation

This risk was not identified. J'NC RED was established in 2008 and began franchising in 2011. With over 150 franchised outlets operating as of the end of 2024, the system is well-established and not new or unproven. The brand has a significant operational history, suggesting the business model is tested and has market acceptance.

Potential Mitigations

• A review of the system's growth trajectory with a business advisor can help you understand its maturity and market position.
• It is still valuable to have your attorney investigate the franchisor's history for any prior business ventures or brand changes.
• Discussions with long-standing franchisees can provide insight into the system's evolution and stability over time.

Explanation

This risk appears to be low. The salon suite rental model is an established concept within the beauty and wellness industry, not a recent fad. The business provides infrastructure (retail space) for a durable and long-standing service industry. The franchisor has been operating for over a decade, which suggests a sustainable business model rather than one based on a short-lived trend.

Potential Mitigations

• Engaging a business advisor to research the long-term trends and competitive landscape of the salon suite industry in your specific market is recommended.
• It is prudent to discuss the business's resilience to economic shifts and changing consumer habits with existing franchisees.
• Your financial advisor can help you assess the model's adaptability and potential for long-term profitability.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive and long-term experience with the Salons by JC system, with most having served in their roles for many years, some since the company's formation in 2008. This indicates a stable and experienced management team that is familiar with both the industry and the franchise system's operations.

Potential Mitigations

• It is still beneficial to conduct independent research on the professional backgrounds of the key executives listed in Item 2.
• Asking current franchisees about their direct experiences and the quality of support from the management team can provide valuable insight.
• Your business advisor can help you assess how the management team's experience aligns with the company's strategic direction and your own business goals.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that J'NC RED is owned by a private equity firm. The company is described as a Texas limited liability company, and the context suggests it is founder-led. The risks often associated with private equity ownership, such as a focus on short-term returns over franchisee health, do not appear to be present.

Potential Mitigations

• It is a good practice to have your attorney verify the ownership structure of the franchisor through public records.
• You should always ask the franchisor about any potential plans for a sale or change in ownership of the franchise system.
• Discussing the franchisor's long-term vision and commitment to the brand with a business advisor can provide additional context.

Explanation

This risk was not identified. Item 1 states that the franchisor does not have any parent company. The FDD includes audited financial statements for the franchising entity, J'NC RED, itself. Therefore, the risk of a parent company's financials being hidden or required but not provided is not applicable here.

Potential Mitigations

• As a matter of due diligence, your attorney can verify the corporate structure through state business filings.
• It is always prudent for your accountant to confirm that the financial statements provided are for the correct legal entity offering the franchise.
• You can ask the franchisor to confirm in writing that there are no parent companies or outside entities that guarantee its performance.

Explanation

This risk was not identified. Item 1 of the FDD states, "We do not have any predecessors." This means the current company, J'NC RED, did not acquire the system from a prior entity. Therefore, there is no risk of a negative history associated with a predecessor company being obscured or undisclosed.

Potential Mitigations

• It is still good practice for your attorney to verify the company's history through public record searches.
• You can ask long-tenured franchisees about the history of the company to confirm there were no informal predecessor entities.
• Your business advisor can research the brand's history to ensure no other entities have operated under a similar name.

Explanation

This risk was not identified. Item 3 states, "No litigation is required to be disclosed in this Item." The absence of disclosed litigation, especially franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits to enforce system standards, is a positive indicator. A pattern of such lawsuits can signal systemic problems, so its absence is favorable.

Potential Mitigations

• Your attorney can conduct an independent search of public court records to look for any litigation that may not have met the technical disclosure requirements of Item 3.
• It is important to ask current and former franchisees about any disputes they may have had, even if they did not result in litigation.
• Understanding the dispute resolution process in the Franchise Agreement with your attorney is crucial for assessing how future conflicts might be handled.