Explanation

This risk was not identified. Rapid, uncontrolled expansion can strain a franchisor's ability to provide adequate support. ShelfGenie SPV LLC (ShelfGenie)'s growth, as shown in Item 20, appears steady rather than excessively rapid, suggesting this may be less of a concern. However, it is always wise to confirm that support systems are scaling with growth.

Potential Mitigations

• Speaking with both new and established franchisees can provide insight into the current quality and responsiveness of franchisor support.
• Questioning the franchisor about their infrastructure for training and support is a key due diligence step you can take with your business advisor.
• A review of the franchisor's investment in support staff and systems can be conducted with your accountant.

Explanation

This risk was not identified. ShelfGenie is an established franchise system that has been in operation since 2008, as disclosed in Item 1. This long operational history suggests the business model is not new or unproven. A newer system would carry higher risks related to unproven concepts and support infrastructure.

Potential Mitigations

• When evaluating any franchise, it is helpful to have your business advisor assess the system's history and maturity.
• An attorney can help you understand the history of the business, including any predecessor companies, as disclosed in Item 1.
• Speaking with long-term franchisees can offer valuable perspective on the evolution and stability of the brand.

Explanation

This risk was not identified. The business provides custom shelving and home organization solutions, a market with long-standing consumer demand. This does not appear to be a fad-based business, which would carry a higher risk of declining consumer interest over time. The stability of the home improvement sector is a key factor.

Potential Mitigations

• Assessing the long-term market demand for any product or service with your business advisor is a wise step.
• Researching industry trends and competition helps in understanding the long-term viability of a business concept.
• A financial advisor can help you consider how a business model might perform through various economic cycles.

Explanation

This risk was not identified. The management team detailed in Item 2, particularly within the parent company Neighborly, possesses extensive experience in franchising and managing large service-based franchise systems. Inexperienced leadership would present a significant risk regarding the quality of support, training, and strategic direction you would receive.

Potential Mitigations

• Reviewing the biographies of the key management team in Item 2 with a business advisor is a valuable due diligence step.
• Inquiring with current franchisees about their perception of the management team's competence and support provides direct insight.
• An attorney can help you understand the implications of any recent high-level management changes.

Explanation

This risk was not identified. The FDD provides extensive disclosure in Item 1 regarding its complex parent and affiliate structure, including the ultimate ownership by funds affiliated with KKR. Audited financial statements for the parent guarantor, Neighborly Assetco LLC, are included in Exhibit C, and a Parent Guarantee is provided in Exhibit D.

Potential Mitigations

• An attorney's review of the corporate structure detailed in Item 1 is essential to understand the roles of the franchisor, manager, and parent guarantor.
• An accountant should always be engaged to review all provided financial statements, including those of any parent entity.
• A thorough review of any parent guarantee with your lawyer helps to assess its strength and enforceability.

Explanation

Item 3 discloses past litigation involving the franchisor's predecessor against a former dealer in Canada. The matter was complex, involved claims and counterclaims, and ultimately concluded with a settlement agreement and mutual releases. While this indicates a past dispute, it does not appear to be part of a broader pattern of litigation with franchisees.

Potential Mitigations

• Your attorney should review the details of any litigation involving the franchisor or its predecessors as disclosed in Item 3.
• Inquiring with long-term franchisees about the company's history and any past disputes can provide valuable context.
• A business advisor can help assess if past issues have been resolved or if they indicate ongoing cultural or operational problems.

Explanation

This risk was not identified in the FDD. Item 3 discloses one significant past case against a dealer and administrative actions involving affiliate brands, but does not reveal a pattern of litigation brought by multiple franchisees against ShelfGenie itself. A pattern of franchisee-initiated lawsuits alleging fraud or breach of contract would be a significant red flag.

Potential Mitigations

• Your attorney should always carefully review Item 3 to identify any litigation history that might indicate systemic problems.
• Independent online searches for news articles or legal actions involving the franchisor can supplement the FDD's disclosures.
• Inquiring with current and former franchisees about their experiences and any disputes is a critical part of due diligence.