Explanation

This risk was not identified in the FDD package. Rapid system growth can sometimes strain a franchisor's ability to provide adequate support to all franchisees. Systems expanding too quickly may outpace their infrastructure for training, site selection, and ongoing operational assistance, potentially diminishing the value provided to each franchisee.

Potential Mitigations

• An analysis of the franchisor's support staff headcount relative to the number of franchisees with your business advisor can reveal their capacity for support.
• Posing questions to the franchisor about their specific plans for scaling support infrastructure is a prudent step to take with your attorney.
• Your accountant should review the franchisor's financials to assess whether they are reinvesting sufficiently in support systems to match any growth.

Explanation

This risk was not identified in the FDD package. Investing in a new or unproven franchise system carries higher risk because the business model may not have a long track record of success. These systems might have underdeveloped operational procedures, minimal brand recognition, and a management team that is inexperienced in providing franchisee support.

Potential Mitigations

• Inquiring with your business advisor about the franchisor's and its executives' specific experience in both the industry and in franchising is crucial.
• If available, speaking with the very first franchisees of the system can provide valuable insight into the early challenges and the franchisor's responsiveness.
• A careful review of the franchisor’s capitalization and financial stability with your accountant is essential for newer systems.

Explanation

This risk was not identified in the FDD package. A business based on a fad or a fleeting trend presents a significant long-term risk. While it might be popular initially, a decline in consumer interest can lead to business failure. You would still be bound by the franchise agreement's obligations even if the market for its services disappears.

Potential Mitigations

• Engaging a business advisor to conduct independent market research can help assess the long-term consumer demand for the product or service.
• It is wise to question the franchisor about its long-term vision and plans for innovation and adaptation beyond the current trend.
• Your financial advisor can help evaluate the business's resilience to shifts in consumer tastes and economic downturns.

Explanation

This risk was not identified in the FDD package. Sandler Systems, LLC (SSL) and its key executives appear to have extensive experience in the industry and in franchising, as detailed in Item 2. A lack of relevant management experience can be a major risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support.

Potential Mitigations

• It is always a good practice to have your business advisor research the backgrounds of the key executives listed in Item 2.
• Speaking with current and former franchisees can provide direct feedback on the management team's competence and effectiveness.
• Your attorney can help you understand the roles and responsibilities of the management team as outlined in the disclosure document.

Explanation

This risk was not identified in the FDD package. The franchisor, Sandler Systems, LLC (SSL), discloses its parent company in Item 1. When a franchisor is a subsidiary, the financial health of the parent company can be critical, especially if the subsidiary is thinly capitalized. Failure to disclose a parent or provide its financial statements when it guarantees performance can hide significant risks.

Potential Mitigations

• An attorney can help verify the full corporate structure and identify any undisclosed controlling entities.
• If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing its financial statements.
• Understanding the legal and financial relationship between the franchisor and any parent entity is a key due diligence step for your attorney.

Explanation

This risk was not identified in the FDD package. The franchisor's history and predecessors appear to be disclosed in Item 1 without any apparent negative history in Items 3 or 4. In some cases, a franchisor might acquire a system from a predecessor with a troubled past. Incomplete disclosure about predecessor litigation or franchisee failures could obscure the true historical challenges of the brand.

Potential Mitigations

• A careful review of Items 1, 3, and 4 with your attorney is important to trace the full history of the franchise system.
• Independent research into any named predecessor entities can sometimes uncover history not detailed in the FDD; your business advisor can assist with this.
• Posing questions to long-tenured franchisees about their experiences under previous ownership can provide valuable context.

Explanation

This risk was not identified in the FDD package. Item 3 discloses one significant, settled lawsuit but does not indicate a recurring pattern of litigation. A pattern of lawsuits filed by franchisees alleging fraud or misrepresentation can be a major red flag, suggesting systemic problems with the franchisor's sales process or business model. Conversely, a high number of suits filed by the franchisor against franchisees might indicate an overly aggressive or litigious culture.

Potential Mitigations

• Having your attorney carefully review the nature, allegations, and outcomes of any disclosed litigation in Item 3 is a critical step.
• It's wise to ask current and former franchisees about their awareness of any disputes with the franchisor, even those not rising to the level of disclosed litigation.
• An online search for news articles or other public records related to the franchisor and litigation should be conducted by your business advisor.