Set The Stage
Initial Investment Range
$169,700 to $178,700
Franchise Fee
$158,500
We offer franchises to qualified individuals and entities to provide staging services and furniture and decor products for sale to Home Sellers, Real Estate Agents, Builders, Developers, Investors, and consumers.
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Set The Stage April 15, 2024 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, Set The Stage, Inc. (STS), shows significant financial weakness. The 2023 audited financial statements reveal a net loss of over $83,000 and a negative shareholder's equity (deficit) of over $131,000, meaning liabilities exceed assets. STS explicitly identifies its "Financial Condition" as a special risk. This financial instability may impact its ability to support you, grow the brand, or even remain in business, placing your investment at considerable risk.
Potential Mitigations
- A franchise accountant should meticulously analyze the franchisor's financial statements, including footnotes and cash flow, to assess its viability without reliance on new franchise sales.
- Discussing the franchisor's plans for achieving profitability and its capitalization strategy with your business advisor is essential.
- Your attorney should verify if any financial assurance, such as a bond or escrow, is required by your state due to the weak financials.
High Franchisee Turnover
Low Risk
Explanation
This risk was not identified in the FDD package. Reviewing franchisee turnover rates in Item 20 is crucial as high numbers of terminations, non-renewals, or closures can signal systemic problems, such as franchisee dissatisfaction, lack of profitability, or poor franchisor support. Consistently low turnover is generally a positive sign for system health and franchisee success.
Potential Mitigations
- An accountant can help you analyze the tables in Item 20 to calculate the actual annual turnover rate for any franchise you consider.
- Speaking with former franchisees from the list provided in the FDD can provide direct insight into why they left the system; your attorney can help prepare questions.
- Your business advisor can help compare the franchise's turnover rate against available industry benchmarks to assess its relative health.
Rapid System Growth
Medium Risk
Explanation
The franchise system is expanding very quickly, growing from one to eight units in 2023. While growth can be positive, such rapid expansion by a new franchisor with significant operating losses and negative equity could strain its limited financial and support resources. There is a risk that STS's ability to provide adequate training, site selection assistance, and ongoing operational support may not keep pace with the number of new franchisees joining the system.
Potential Mitigations
- It is important to ask the franchisor for their specific plan to scale support infrastructure to match the rapid unit growth.
- Engaging with a range of existing franchisees, both new and established, can provide perspective on the current quality and responsiveness of franchisor support.
- Your accountant should review how the costs of supporting this growth are impacting the franchisor's already strained financial position.
New/Unproven Franchise System
High Risk
Explanation
STS is a new and unproven franchise system. The company began offering franchises in 2022 and has a very limited operating history. This is explicitly disclosed as a "Short Operating History" in the FDD's Special Risks section. Investing in a new system carries higher risk due to the lack of a long-term track record, minimal brand recognition, and potentially underdeveloped operational systems and support, which could affect your potential for success.
Potential Mitigations
- Extensive due diligence on the business model and management's background is critical; a business advisor can assist in this evaluation.
- Speaking with the earliest franchisees listed in Item 20 is crucial to understand their experience with the developing system.
- Given the higher risk, your attorney might be able to negotiate more franchisee-favorable terms to compensate.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD package. A business model tied to a short-lived trend or fad presents a significant risk. Even if the franchise agreement term is long, the decline in consumer interest could lead to business failure. It is important to assess if a concept has sustainable, long-term market demand or if it is based on a novelty.
Potential Mitigations
- To better assess market longevity, consider working with a business advisor to research the industry and consumer demand trends.
- Evaluating the franchisor’s stated plans for research, development, and system evolution with your business advisor is a prudent step.
- Your financial advisor can help you analyze the business model's resilience to economic shifts and changing consumer tastes.
Inexperienced Management
Medium Risk
Explanation
The franchisor's management team appears to lack direct experience in managing a franchise system. Item 2 shows the CEO's background is not in franchising or the home staging industry, though other executives have industry experience with the parent company. This lack of specific franchise management expertise at the leadership level could result in weaker support systems, strategic errors, and a general misunderstanding of the franchisee-franchisor relationship, which may impact your business operations and support quality.
Potential Mitigations
- Asking the franchisor directly about the franchising experience of their leadership and support teams is an important step.
- Interviewing current franchisees about the quality and effectiveness of the management team and the support provided is highly recommended.
- A business advisor can help you assess whether the existing management structure seems adequate to support a growing franchise system.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package. When a franchise is owned by a private equity firm, there's a possibility that decisions will prioritize short-term investor returns over the long-term health of the system. This can sometimes lead to increased fees, reduced support, or pressure on franchisees. Understanding the ownership structure is a key part of due diligence.
Potential Mitigations
- Researching a private equity firm's history with other franchise brands can provide insight into their management style; your business advisor can help.
- Consulting an attorney is important to understand the implications of assignment clauses that allow the franchisor to sell the system.
- Speaking with franchisees who have been through an ownership change can offer valuable perspectives.
Non-Disclosure of Parent Company
Medium Risk
Explanation
While the FDD discloses that STS is owned by a parent company, The Key Design, LLC, it does not include the parent's financial statements. Given that STS is financially insolvent with negative equity, the financial stability of its parent is a material fact for assessing the overall health and backing of the franchise system. The absence of these financial statements obscures a full view of the potential risks or strengths of the parent entity.
Potential Mitigations
- Your accountant should be asked to assess the franchisor's ability to operate without clear financial support from its parent.
- It is wise to ask the franchisor directly why the parent company's financial statements have not been included for review.
- A discussion with your attorney is important to understand the legal and financial separation between the parent and the franchisor entity.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. It is important to review a franchisor's history, including any predecessors from which it acquired the business. Undisclosed or downplayed negative history, such as litigation or high franchisee failure rates under a predecessor, could hide systemic problems that may still affect the franchise system today.
Potential Mitigations
- An attorney should carefully review Item 1 of the FDD for any mention of predecessors and their history.
- A business advisor can assist you in researching the public record and news archives for information on any predecessor companies.
- Asking long-term franchisees about their experiences under any previous ownership can provide valuable, direct insight.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD package. A pattern of litigation against a franchisor, especially lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag. It may indicate systemic problems in the franchisor's operations, sales process, or relationship with its franchisees. Item 3 of the FDD requires disclosure of certain types of litigation.
Potential Mitigations
- Your attorney should be consulted to carefully review any litigation disclosed in Item 3 of an FDD.
- It is prudent to ask a significant number of current and former franchisees about their experiences and if they are aware of any disputes.
- A business advisor can help you research public records for any additional litigation history not required to be disclosed in the FDD.
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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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.
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