Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide adequate support. However, Item 20 data for 2024 shows the system size decreased, indicating that the risks associated with overly rapid expansion are not a current primary concern for this franchisor. The focus should be on the reasons for system shrinkage rather than the challenges of growth.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support infrastructure is appropriate for its current size.
• When speaking with current franchisees, it is useful to ask about the quality and consistency of support they receive.
• Your accountant can review the financials in Item 21 to determine if the franchisor has sufficient resources allocated to franchisee support.

Explanation

This specific risk is not present. SRAI has a long operational history, having been founded in 1959 and franchising since 1970. The FDD indicates a large, established system with experienced management. Therefore, the risks typically associated with an unproven or new franchise system do not appear to apply here. The business model is well-established in the executive search industry.

Potential Mitigations

• Even with an established system, asking your business advisor to help you contact franchisees who joined at different times can provide a balanced view of the system's evolution.
• An accountant can still review financial trends over the three years provided to gauge the long-term health of this mature system.
• Consulting your attorney to review the full history described in Item 1 is always a prudent step.

Explanation

This risk was not identified. The business is in the executive search and recruiting industry, which is a long-established professional service sector. While market demands can fluctuate with economic cycles, the fundamental need for recruiting services is not typically considered a fad. SRAI has operated in this market since 1959, demonstrating long-term demand for its services.

Potential Mitigations

• A business advisor can help you research the long-term outlook for the executive search industry in your specific target market.
• It is beneficial to discuss the company's strategies for adapting to changes in the recruiting landscape, such as new technologies, with current franchisees.
• Your financial advisor can help assess the business model's resilience to economic downturns.

Explanation

This risk is not present in the FDD. Item 2 details the backgrounds of the franchisor's key management personnel, many of whom have extensive, long-term experience not only within the executive search industry but also specifically with SRAI and its affiliated companies. The executive team appears to be stable and deeply experienced in both the specific business and in franchising.

Potential Mitigations

• A business advisor can help you verify the backgrounds of key executives if you have any concerns.
• When speaking with franchisees, it is still a good practice to inquire about their direct experiences with the management team's accessibility and support.
• Your attorney can review the roles and responsibilities of the management team as described throughout the FDD.

Explanation

This FDD does not indicate that the franchisor is owned by a private equity firm. SRAI is owned by Next Level Exchange, LLC, which appears to be an industry-related entity rather than a financial-focused private equity fund. Therefore, the specific risks associated with short-term profit motives often linked to PE ownership may not be a primary concern here.

Potential Mitigations

• A business advisor can help research the ownership structure and background of the parent company, Next Level Exchange, LLC.
• It is always prudent to have your attorney review the assignment clauses in the Franchise Agreement to understand who the franchisor can be sold to.
• When speaking with other franchisees, you can ask about any changes in operations or philosophy since the parent company took ownership.

Explanation

This risk was not identified. The FDD discloses the parent company, Next Level Exchange, LLC, and its parent, Next Level Exchange Holdings, Inc. Audited financial statements for the franchisor entity, Sanford Rose Associates International, LLC, are provided in Exhibit Two as required. There is no indication that required parent company financials have been omitted.

Potential Mitigations

• Your attorney can confirm the corporate structure and ensure all required disclosures regarding parent companies are present.
• It is important for your accountant to review the provided financials and assess their compliance with accounting standards.
• Understanding the relationship between the franchisor and its parent companies can be explored in discussions with your business advisor.

Explanation

This risk is not present in the FDD. Item 1 discloses a history of predecessors and ownership changes, but there is no indication of hidden negative history. Item 3 discloses a past regulatory issue but is transparent about it. Item 4 reports no bankruptcies for the franchisor or its predecessors. The disclosure appears to provide a clear lineage of the company and its past issues.

Potential Mitigations

• It is still wise to have your attorney review the complete corporate history in Item 1 and the litigation history in Item 3.
• A business advisor can assist with researching public records or news archives for information about the franchisor's predecessors.
• Asking long-term franchisees about their experiences under any previous ownership can provide valuable context.

Explanation

The FDD discloses one past regulatory action. In 2019, SRAI entered into an Assurance of Voluntary Compliance with the Illinois Attorney General for an

Potential Mitigations

• Your attorney should review the details of the disclosed litigation to understand its nature and resolution.
• It is important to discuss with your attorney whether this single past issue suggests any ongoing compliance risks.
• A business advisor can help you investigate if there are other undisclosed legal issues through public record searches.