Explanation

This risk was not identified in the FDD package, as Item 20 data indicates the system is shrinking rather than growing rapidly. Rapid growth can strain a franchisor's resources, potentially leading to inadequate support for franchisees. It's generally a positive sign when a franchisor manages its growth at a sustainable pace, ensuring it can maintain quality and support for its existing network. A shrinking system, however, presents its own distinct set of risks.

Potential Mitigations

• Your business advisor can help you evaluate whether a franchisor's growth rate, whether fast or slow, aligns with its capacity to provide robust franchisee support.
• When speaking with existing franchisees, it is useful to ask them about their perception of the franchisor's support system in relation to its size.
• An accountant should review a franchisor's financial statements to assess if they are reinvesting in infrastructure to support the franchisee network.

Explanation

This specific risk was not identified, as the Screenmobile brand has a long operational history since 1984. However, you should be aware that the current franchisor entity, Screenmobile Franchising SPE LLC (SMF-SPE), was only formed in 2023 following an acquisition by Authority Brands. While the brand is established, the specific ownership and management structure is new, which carries its own set of considerations related to changes in culture, support, and strategic direction for the system.

Potential Mitigations

• A business advisor can help you perform due diligence on a new franchise system to assess the viability of its business model.
• With any new system, it is crucial to have your attorney carefully review the franchise agreement for franchisee-protective terms.
• An accountant should scrutinize the financial statements of a new franchisor to verify it is adequately capitalized for success.

Explanation

This risk was not identified in the FDD package. The business of providing and repairing window, patio, and door screens is an established service industry with consistent consumer demand. It is not based on a short-lived trend or novelty. A business tied to a fad can be a significant risk, as its long-term viability may be uncertain once consumer interest fades, even though your contractual obligations to the franchisor would continue.

Potential Mitigations

• Engage a business advisor to research the target industry and assess whether the demand for the product or service is sustainable or trend-dependent.
• Review a franchisor's plans for innovation and adaptation with your attorney to see if they are prepared for changing market tastes.
• An accountant can help you model the financial risks of investing in a business that may have a short market lifespan.

Explanation

This risk was not identified. The FDD clearly discloses the parent companies, Authority Brands, Inc. and AB Assetco LLC, in Item 1. It also includes the audited financial statements for both the managing parent (Authority Brands, Inc.) and the ultimate guarantor parent (AB Assetco LLC) as Exhibit I to the FDD. This provides a degree of transparency into the financial structure and health of the entities that own and operate the franchise system.

Potential Mitigations

• Your attorney can help you understand the corporate structure and determine if financials for a parent company should have been included.
• If a parent company guarantees the franchisor's performance, an accountant's review of that parent's financials is crucial.
• A business advisor can help investigate the history and stability of any undisclosed parent company that may be discovered.

Explanation

This specific risk was not identified. Item 1 discloses The Screenmobile Corporation as the predecessor franchisor. However, Items 3 and 4 do not disclose any bankruptcy or pattern of material litigation involving the predecessor that would indicate inherited issues. In general, it is important to review a predecessor's history, as a new owner may acquire a system with pre-existing problems that could affect your business, such as a poor reputation or dissatisfied franchisees.

Potential Mitigations

• Your attorney should carefully review Items 1, 3, and 4 for any disclosures about a predecessor's negative history.
• A business advisor can assist you in researching the predecessor's public track record and reputation in the industry.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable insight into the system's history.

Explanation

This risk was not identified. Item 3 discloses two recent legal actions, both of which were initiated by the franchisor or its predecessor against franchisees for collections or contract enforcement. While any litigation is noteworthy, this does not represent a pattern of franchisees suing the franchisor for fraud, misrepresentation, or similar claims, which would be a more significant red flag about the franchisor's practices.

Potential Mitigations

• A franchise attorney must review the details of any litigation disclosed in Item 3 to assess its potential impact on the franchise system.
• Your attorney can help you conduct public records searches to see if there is other litigation not required to be disclosed in the FDD.
• Speaking with current and former franchisees about their experiences can provide context for any disclosed legal disputes.