
Scout & Molly's
Initial Investment Range
$319,000 to $502,000
Franchise Fee
$70,000 to $190,000
The Franchisee will own and operate a business offering women’s clothing, jewelry, handbags and accessories in brick and mortar retail location.
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Scout & Molly's April 30, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor explicitly warns that its financial condition calls its ability to support you into question. The audited financial statements in Item 21 confirm this, showing a significant negative net worth of -$364,130 for 2024, which has worsened from the prior year. This condition, where liabilities exceed assets, may pose a substantial risk to the franchisor's long-term viability and its capacity to provide promised support and services.
Potential Mitigations
- A franchise accountant must meticulously review the franchisor's financial statements, including the negative equity and cash flow statements.
- Your attorney should investigate if any financial assurance, like a bond or escrow, is required by your state due to this instability.
- Discussing the franchisor's plans to address this financial deficit with your business advisor and the franchisor directly is advisable.
High Franchisee Turnover
High Risk
Explanation
Item 20 data reveals a concerning pattern of franchisee outlets ceasing operations. In 2024, three out of 22 starting franchised units closed, representing a significant annual churn rate of nearly 14%. This high rate of closures may suggest underlying issues within the system, such as challenges with profitability or franchisee dissatisfaction, presenting a material risk to your potential success.
Potential Mitigations
- It is critical to contact the former franchisees listed in Exhibit B-2 to understand their reasons for leaving the system; your attorney can help frame questions.
- Your accountant should help you model worst-case financial scenarios based on the possibility of a high failure rate.
- Discuss the reasons for these closures directly with the franchisor, with your business advisor present to evaluate their responses.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD package. Rapid growth can strain a franchisor's resources, potentially leading to a decline in the quality of support, training, and site selection assistance provided to new franchisees. It is important to assess whether a franchisor's support infrastructure is keeping pace with its unit growth.
Potential Mitigations
- An accountant should review the franchisor's financial statements to determine if they possess the capital to support a growing system.
- Questioning current franchisees about the quality and timeliness of support can provide insight into the franchisor's operational capacity.
- Your business advisor can help you assess whether the franchisor's staffing and infrastructure plans are adequate for their projected growth.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified in the FDD package. FranLogic Scout Development, LLC (FranLogic LLC) began franchising in 2014, indicating over a decade of operational history. Investing in a new or unproven franchise system carries higher risks, as the business model, brand recognition, and support systems may not be well-established. A longer track record can provide more data for assessing viability.
Potential Mitigations
- A business advisor can help you research the history of the brand and the experience of its management team.
- Speaking with the longest-tenured franchisees is a crucial step to understanding the system's evolution and stability.
- Your accountant should carefully review the financial performance of an established system over several years to identify trends.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD package. The business, a women's clothing and accessories boutique, operates in an established retail sector. Investing in a business tied to a short-term trend can be risky, as consumer interest may fade, leaving you with a potentially obsolete business and ongoing contractual obligations. Evaluating the long-term market demand for a product or service is a critical due diligence step.
Potential Mitigations
- A business advisor can help you conduct market research to assess the long-term sustainability of the business concept.
- Evaluating the franchisor's plans for product innovation and adaptation is important for long-term relevance.
- Your accountant can assist in creating financial models that account for potential shifts in consumer trends.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD package, as key executives listed in Item 2 generally show many years of experience in franchising and related industries. Inexperienced management can be a significant risk, as it may lead to weak operational systems, inadequate franchisee support, and poor strategic decisions. Evaluating the specific franchising and industry experience of the leadership team is a vital part of due diligence.
Potential Mitigations
- A thorough review of the executive team's biographies in Item 2 with a business advisor is a good first step.
- Interviewing current franchisees about their direct experiences with the management team's competence and support is crucial.
- Your attorney can help you understand the implications of management's experience on the franchisor's obligations in the agreement.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package, as Item 1 does not indicate ownership by a private equity firm. When a franchisor is owned by a private equity firm, there may be a focus on short-term profitability over the long-term health of the brand and its franchisees. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system.
Potential Mitigations
- Your business advisor can help you research the track record of any private equity owner with other franchise concepts.
- It is wise to ask current franchisees about any changes in operations or support since a private equity acquisition.
- An attorney should review assignment clauses in the agreement to understand what happens if the system is sold.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified in the FDD package, as Item 1 does not disclose any parent companies. In some franchise systems, the direct franchisor entity is a subsidiary of a larger parent company. If the franchisor is thinly capitalized, failing to provide financial statements for a parent company that guarantees its obligations can obscure a full picture of the system's financial health and backing.
Potential Mitigations
- An attorney can help determine if a parent company's financials should have been included based on state and federal rules.
- If a parent company exists and provides a guarantee, your accountant should review its financial statements for stability.
- A business advisor can help you investigate the relationship and power dynamics between a subsidiary franchisor and its parent.
Predecessor History Issues
Medium Risk
Explanation
Item 1 discloses that FranLogic LLC acquired the assets from predecessor entities in 2014. Item 3 discloses litigation that occurred under previous management before the current CEO. While the history is disclosed, the presence of significant legal and financial issues, even under prior leadership, can sometimes indicate inherited systemic challenges that may persist. This history requires careful consideration of the brand's overall trajectory.
Potential Mitigations
- Your attorney should carefully review all disclosures related to the predecessors, especially the litigation history in Item 3.
- In discussions with long-term franchisees, asking about their experience under both old and new ownership can provide valuable context.
- A business advisor can help you assess what changes the current management has made to address any historical problems.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses a history of significant litigation. This includes a settled lawsuit from a franchisee alleging misleading advertising, an arbitration loss for failure to pay a vendor, and another settled suit from a former owner alleging fraud. This pattern of disputes, involving substantial settlement payments, could indicate risks related to the franchisor's business practices, financial management, and relationships with its partners and franchisees.
Potential Mitigations
- Your attorney must carefully review the allegations and outcomes of all lawsuits disclosed in Item 3 to assess potential systemic issues.
- Discussing these litigation matters with current and former franchisees may provide additional context beyond the FDD's description.
- Considering this litigation history a significant red flag regarding the franchisor's operational and ethical track record is prudent.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.