Explanation

The data provided in FDD Item 20 tables does not indicate a high rate of franchisee terminations, non-renewals, or other cessations. Low turnover can be a positive sign of franchisee satisfaction and system health. However, you should still verify this by speaking with current and former franchisees, as turnover rates can change and are a critical indicator of potential systemic problems or franchisee dissatisfaction.

Potential Mitigations

• It is vital to speak with a representative number of current and former franchisees from the lists in Exhibit F to validate the low turnover data.
• Your franchise attorney can help you formulate key questions to ask former franchisees about their reasons for leaving the system.
• A business advisor can help you monitor this metric over time, as it is a key indicator of system health.

Explanation

This specific risk was not identified in the FDD package. The business model, focused on routine dog wellness and hygiene care, operates within the large and established pet care industry, which generally does not exhibit characteristics of a short-term fad. A strong, long-term market demand for a franchise's products or services is a key component of a sustainable investment.

Potential Mitigations

• A business advisor can help you research long-term trends and competitive pressures within the pet care and grooming industry.
• When speaking with existing franchisees, inquire about local market demand, customer retention, and competition.
• Your accountant can help you model different scenarios for revenue based on market stability.

Explanation

The management team's business experience, as described in Item 2, appears to include individuals with significant prior experience in other franchise systems. An experienced management team can be a positive factor, as it may lead to more developed operational systems, better franchisee support, and a stronger strategic vision. Inexperienced management can pose a significant risk to a franchise system's stability and success.

Potential Mitigations

• During discussions with the franchisor, your business advisor could help you probe into the specific roles and contributions of the experienced management team.
• In due diligence calls, ask current franchisees for their direct assessment of the management team's competence and responsiveness.
• An attorney can help verify the background of key executives through public records if concerns arise.

Explanation

This risk was not identified, as FDD Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. When a PE firm is involved, there can be a risk that short-term financial goals are prioritized over the long-term health of the brand and its franchisees. It is generally positive when a franchise is founder-led, though this has its own set of potential risks.

Potential Mitigations

• Your attorney should always confirm the ownership structure detailed in Item 1 and investigate the reputation of any controlling entities.
• Understanding the long-term goals of the ownership group is a key due diligence step a business advisor can assist with.
• Ask your attorney to review any clauses in the Franchise Agreement that give the franchisor the right to sell the system.

Explanation

This specific risk was not identified. Item 1 of the FDD clearly discloses the parent company, and there is no indication that the parent's financial statements are required but have been withheld. Full transparency about parent companies and their financial health, especially if they guarantee the franchisor's obligations, is critical for assessing the overall stability and backing of the franchise system.

Potential Mitigations

• Your accountant should confirm if the provided financial statements are sufficient or if a parent company's financials might be legally required for a complete risk assessment.
• An attorney can help you investigate the relationship between the franchisor and its parent to understand any dependencies or support structures.
• Always ask for a parent company guarantee if the franchisor entity itself appears thinly capitalized, with guidance from your attorney.

Explanation

This risk was not identified, as FDD Item 1 does not disclose any predecessor entities. When a franchisor has a predecessor, it is important to scrutinize that entity's history for issues like litigation, bankruptcy, or high franchisee failure rates, as these can indicate inherited problems within the system. The absence of a predecessor simplifies this aspect of due diligence.

Potential Mitigations

• As part of due diligence, your attorney can conduct public record searches to confirm the franchisor's corporate history and ensure no predecessor information has been omitted.
• Speaking with the longest-tenured franchisees can help verify the historical narrative of the brand's founding and development.
• A business advisor can help you understand the implications if a brand was recently acquired from another entity.

Explanation

This risk was not identified, as FDD Item 3 discloses no material litigation involving the franchisor. A clean litigation history is a positive sign. However, it is important to remember that only certain types of litigation must be disclosed. A pattern of franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits against franchisees can be a major red flag indicating systemic problems.

Potential Mitigations

• An attorney can conduct independent searches of court records to verify the 'no litigation' disclosure and look for non-material suits that might still reveal issues.
• When speaking with former franchisees, always ask if legal disputes were a factor in their departure.
• Your business advisor can help you understand common areas of conflict in franchising that might lead to litigation.