Explanation

This risk was not identified in the FDD Package. Item 20 data does not show high franchisee turnover because the system is brand new, with only one franchisee as of the reporting date. High turnover is a critical warning sign in mature systems, as it can indicate franchisee dissatisfaction, lack of profitability, or poor franchisor support. You should monitor this data in future FDDs if you invest.

Potential Mitigations

• A business advisor can help you analyze future Item 20 tables to calculate the annual turnover rate.
• When speaking with franchisees, your attorney can help you ask specific questions about their satisfaction and profitability to gauge system health.
• Understanding the typical reasons for franchise churn, such as unprofitability or conflicts, is a key part of due diligence an accountant can assist with.

Explanation

This risk was not identified in the FDD Package. As a new system with only one unit open as of the FDD issuance date, the franchisor has not yet experienced a period of rapid growth. However, Item 20 projects 43 new openings in the next fiscal year, which would be rapid. Unchecked growth can strain a franchisor's ability to provide adequate support, so this is a future risk to monitor.

Potential Mitigations

• Your business advisor can help you question the franchisor about their staffing and infrastructure plans to support projected growth.
• An accountant's review of the franchisor's financials can help determine if they are capitalized to handle a rapid expansion.
• It is wise to ask your attorney how the franchise agreement protects you if franchisor support diminishes due to over-expansion.

Explanation

This risk was not identified in the FDD Package. The parcel shipping and business services industry is a long-established and essential part of the economy with sustained consumer and business demand. The franchise does not appear to be based on a temporary trend or fad, which reduces the risk of the entire concept becoming obsolete due to shifting consumer tastes.

Potential Mitigations

• Engaging a business advisor to research the long-term outlook and competitive landscape for the retail shipping industry is still a prudent step.
• You should discuss the business model's resilience to economic shifts and the rise of e-commerce with your financial advisor.
• Your attorney can review the franchisor's obligations for system evolution to ensure they are committed to adapting to market changes.

Explanation

This risk was not identified in the FDD Package. The disclosures in Item 1 do not indicate that the franchisor is owned or controlled by a private equity firm. Ownership appears to be held by the founding individuals listed in Item 2. Therefore, risks commonly associated with PE ownership, such as a focus on short-term profits over long-term system health, do not appear to be present here.

Potential Mitigations

• A business advisor can help you verify the company's ownership structure through public records if there are any doubts.
• It is still prudent to ask your attorney to review any clauses in the Franchise Agreement related to the sale or transfer of the franchise system.
• Discussing the long-term vision for the brand with the founders directly can provide insight into their commitment.

Explanation

This risk was not identified in the FDD Package. Item 1 states that ShippingShop does not have any parent company. The document does disclose affiliates, including the entity that owns the intellectual property and a similar franchise system in Mexico, which provides a degree of transparency into the overall corporate structure. There does not appear to be a controlling parent entity whose financials are being withheld.

Potential Mitigations

• Your attorney can confirm the corporate structure and the roles of the disclosed affiliates to ensure full understanding.
• An accountant should still review the financial statements of the franchisor entity itself to assess its standalone viability.
• Asking the franchisor to explain the relationship and any financial interdependencies between itself and its affiliates is a sound due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD explicitly states that the franchisor does not have any predecessors. This means the current entity, ShippingShop LLC, is the original franchisor for this system and has not acquired it from a prior company. Therefore, there are no hidden historical issues from a predecessor to consider.

Potential Mitigations

• A review of the franchisor's formation documents and history with your attorney can confirm the absence of any predecessors.
• Your business advisor can help you focus due diligence on the current management team's track record, since there is no predecessor history.
• Understanding the franchisor's own limited history is critical, a task your accountant can assist with by analyzing their startup financials.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. For a very new franchise system, the absence of litigation is expected. However, it's important to monitor this in future FDDs, as a pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag in an established system.

Potential Mitigations

• Your attorney can perform an independent public records search to verify that no undisclosed litigation exists.
• It is wise to ask the franchisor about their dispute resolution philosophy and how they handle franchisee disagreements.
• A business advisor can help you establish a process for monitoring future FDDs for any changes in litigation disclosures.