Explanation

This risk was not identified in the FDD package. Item 20 data does not indicate a high rate of terminations, non-renewals, or other cessations. High turnover can be a red flag for systemic issues, such as lack of profitability, poor franchisor support, or an unviable business model. A stable and growing franchise system is generally a positive indicator for prospective franchisees, suggesting satisfaction among existing operators.

Potential Mitigations

• An accountant can help you analyze the franchisee turnover rates in Item 20 across multiple years to identify any negative trends.
• It is wise to ask former franchisees on the Item 20 contact list about their reasons for leaving the system.
• Your business advisor can assist you in comparing the system's turnover rates to industry averages for context.

Explanation

The franchise system shows steady annual growth, adding approximately 20-25 new franchised units per year for the last several years. While this growth is positive, any rapid expansion can potentially strain a franchisor's support systems. Given that SoR LLC is owned by a large private equity firm with extensive resources, the risk of outpacing support capabilities appears to be low but is worth noting as the system continues to expand.

Potential Mitigations

• In your discussions with current franchisees, inquire specifically about the quality and responsiveness of the support they receive.
• A business advisor can help you assess if the franchisor's disclosed support infrastructure appears adequate for its growth rate.
• Clarify with the franchisor what investments are being made to scale support services as the number of franchisees increases.

Explanation

This risk was not identified in the FDD package. School of Rock has been franchising since 2005 and has a substantial number of operational units, indicating it is a mature and established system. An unproven system would present higher risks related to the viability of the business model, the adequacy of support, and overall brand recognition. The franchisor's long history mitigates these specific concerns.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor help assess the franchisor's history and track record.
• Speaking with the earliest-joining franchisees can provide insight into the system's evolution and stability.
• Your accountant can review financial statements for signs of stability and longevity that you would not see in an unproven system.

Explanation

This risk was not identified. The business model, which centers on performance-based music education for children and adults, serves a market with consistent, long-term demand. This type of educational service is not typically considered a fad and has demonstrated sustainability over many years, reducing the risk that your business's value could diminish due to a rapid decline in consumer interest.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term demand for these services in your area.
• Evaluating the franchisor's plans for curriculum updates and program innovation can provide insight into its long-term vision.
• Your financial advisor can help assess the business model's resilience to economic cycles and changing trends.

Explanation

This risk was not identified in the FDD package. The executive team members detailed in Item 2 appear to possess significant experience within the company, the industry, or in other relevant business leadership roles. Inexperienced management can be a significant risk factor, potentially leading to poor strategic decisions and inadequate support for franchisees, but that does not appear to be the case here.

Potential Mitigations

• A business advisor can help you vet the backgrounds of the key management team for relevant franchising and industry experience.
• Asking current franchisees about their perception of the management team's competence and vision is a key due diligence step.
• Your attorney can help you understand the roles and responsibilities of the key executives as described in the FDD.

Explanation

This risk was not identified in the FDD package. Item 1 provides a clear description of the franchisor's ownership structure, including its direct parent (SOR Parent), indirect parent (Youth Enrichment Brands, LLC), and its affiliation with Roark Capital. Failing to disclose a parent company can obscure financial or operational risks, but this FDD appears to be transparent in this regard.

Potential Mitigations

• Your attorney should always verify that the ownership structure disclosed in Item 1 is complete and transparent.
• If a parent company provides a guarantee, it's important for an accountant to review the parent's financial statements, if provided.
• Understanding the complete corporate structure helps a business advisor assess where key decisions are made.

Explanation

This risk was not identified, as Item 1 of the FDD states, "We have no predecessors." When a franchisor has a predecessor, it's important to investigate that entity's history for any signs of trouble, such as litigation or high franchisee turnover, which could carry over to the new entity. The absence of a predecessor simplifies this aspect of due diligence.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor information disclosed in Item 1.
• In cases with a predecessor, speaking with franchisees who operated under the previous ownership provides crucial historical context.
• A business advisor can help you research the public records of any disclosed predecessor for potential red flags.