Explanation

This risk was not identified. While the system is growing, Item 20 data does not suggest a growth rate so rapid that it would inherently outstrip the franchisor's resources, especially given the high turnover. However, rapid growth in any system can strain support services like training and site selection assistance, potentially affecting franchisee success if not managed properly. The franchisor's poor financial condition could further challenge its ability to support growth.

Potential Mitigations

• A business advisor can help you question the franchisor about their plans and budget for scaling support staff and infrastructure to match unit growth.
• Speaking with newer franchisees can provide your business advisor with insight into the current quality and responsiveness of the support system.
• Have your accountant review the franchisor's financials to assess whether they possess the capital to support both new and existing franchisees adequately.

Explanation

This risk was not identified. S&S began franchising in July 2017 and its founders have been involved with the concept since 2014. The system has more than a few years of operational history and dozens of units. A new or unproven system presents higher risks because its business model, brand recognition, and support structures may be undeveloped, which can lead to a higher potential for failure. This does not appear to be the case here.

Potential Mitigations

• It is still wise to have a business advisor help you conduct due diligence on the management team's experience in both the industry and in franchising.
• You should speak with a range of franchisees, including the earliest ones, about their experiences with the system's evolution and support.
• Your accountant can assess the franchisor's historical financial performance to gauge the stability and maturity of the business model over time.

Explanation

This risk was not identified in the FDD package. The business model, a high-end barbershop with a lounge, caters to a specific market segment that appears to have sustained demand rather than being tied to a short-term trend. A fad business carries the risk that consumer interest could decline quickly, potentially leaving you with a failing business and long-term contractual obligations. Assessing the long-term viability of any business concept is a crucial step in due diligence.

Potential Mitigations

• To confirm the concept's longevity, consider working with a business advisor to research market trends for high-end grooming and lounge services.
• Questioning the franchisor about their strategies for innovation and adaptation can provide insight into their long-term vision.
• Engaging with existing franchisees can help you understand the stability of customer demand in different markets over time.

Explanation

This risk was not identified. The executives and founders listed in Item 2 appear to have several years of experience with the Scissors & Scotch concept, dating back to 2014, and in some cases have prior experience in franchise operations with other brands. Inexperienced management can be a significant risk, as it may lead to inadequate support, unproven systems, and poor strategic decisions, even if the business concept itself is sound.

Potential Mitigations

• It remains prudent to discuss the quality of support and training with a range of existing franchisees.
• A business advisor can help you assess the depth and relevance of the management team's collective experience.
• During your due diligence, asking the franchisor about their strategic planning and support development processes can offer further confidence.

Explanation

This risk was not identified in the FDD package. There is no disclosure in Item 1 that S&S is owned by a private equity firm. When a franchisor is owned by a private equity firm, there may be a risk of decisions prioritizing short-term investor returns over the long-term health of franchisees. This can sometimes manifest as reduced support, increased fees, or pressure to use affiliated vendors.

Potential Mitigations

• In any franchise opportunity, it is wise to have your attorney help you understand the franchisor's ownership structure and any recent changes.
• A business advisor can assist in researching the reputation and track record of any parent company or major investor.
• Discussing any changes in system direction or support levels with long-term franchisees can provide valuable context.

Explanation

This risk was not identified. S&S states in Item 1 that it has no predecessors. A predecessor is a prior entity from which the franchisor acquired its main assets. When a franchisor has a predecessor, it is important to review their history for issues like litigation, bankruptcy, or high franchisee failure rates, as these could indicate historical problems with the system that may continue under the new ownership.

Potential Mitigations

• Verifying the franchisor's corporate history with your attorney is always a good practice.
• Independent online research can sometimes uncover prior business names or related entities that a business advisor could help investigate.
• Asking long-term franchisees about the history of the brand and its management can provide valuable context.

Explanation

This risk was not identified in the FDD package. S&S discloses in Item 3 that there has been no material litigation required to be disclosed. A pattern of litigation, particularly franchisee-initiated lawsuits alleging fraud or misrepresentation, is a significant red flag. It can indicate systemic problems with the franchisor's sales practices, support obligations, or overall business model. A high volume of franchisor-initiated lawsuits can also suggest an overly aggressive or litigious relationship with its franchisees.

Potential Mitigations

• Although no litigation is disclosed, your attorney can conduct independent searches to verify this information.
• A business advisor can guide you in asking current and former franchisees about their experiences with disputes and dispute resolution.
• It is always prudent to understand the dispute resolution clauses in the Franchise Agreement with your attorney.