Explanation

This risk was not identified in the FDD package. The franchisor began operations in 2008 and has a substantial history of franchising. An unproven system can be a risk because it may lack a refined business model, established brand recognition, and experienced support structures, which can increase the potential for business failure for a new franchisee. However, this franchise has been operating for many years.

Potential Mitigations

• For any franchise, it is wise to have your attorney review the franchisor's history and corporate structure as described in Item 1.
• A business advisor can help evaluate the maturity of the franchise system and its track record, even for established brands.
• Reviewing Item 20 data with an accountant can provide insight into the long-term stability and growth trends of the system.

Explanation

This risk was not identified in the FDD package. The franchisor operates in the security services industry, which is an established sector with consistent demand. A fad business, based on a short-lived trend, presents a risk that customer interest will decline, potentially leaving you with a worthless business but still bound by the long-term franchise agreement. This business model does not appear to be a fad.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for any franchise's products or services.
• It is prudent to evaluate a company's plans for future innovation and adaptation with your financial advisor.
• Question the franchisor about the longevity of their business model and how it has adapted to market changes over time.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have extensive experience with the Signal brand, with some having been involved since 2007. Inexperienced management can be a significant risk because it may lead to poor strategic decisions, inadequate franchisee support, and an unrefined operating system. The management team for this franchise appears to have substantial experience in the business.

Potential Mitigations

• For any franchise investment, it's beneficial to have a business advisor help you research the professional backgrounds of the key executives listed in Item 2.
• Speaking with current franchisees is a valuable way to gather feedback on the quality and competence of the management team.
• Your attorney can help you ask targeted questions about the management team's experience in both the specific industry and in franchising.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that after a prior investment transaction, the parent company's stock was redeemed and the CEO, Reed Nyffeler, now owns 100% of the common stock, suggesting it is founder-controlled, not owned by a private equity firm. PE ownership can introduce risks related to a focus on short-term returns over the long-term health of the system.

Potential Mitigations

• A business advisor can help you investigate the ownership structure of any franchisor, including whether it is controlled by a private equity firm.
• If a franchisor is PE-owned, researching the firm's track record with other franchise brands is an important due diligence step.
• Your attorney should review any clauses in the Franchise Agreement that give the franchisor broad rights to sell or assign the system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly identifies the parent company, Signal 88 Franchise Group, Inc. A failure to disclose a parent company, especially if it guarantees obligations or is a critical supplier, can obscure significant risks related to the system's true financial backing and stability. This FDD appears to properly disclose the corporate structure.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 and confirm that all required parent or affiliate information is included.
• If a parent company is disclosed, your accountant should determine if the parent's financial statements are required and provided.
• It is wise to ask the franchisor to clarify the relationship and flow of support between the parent company and the franchising entity.

Explanation

This risk was not identified in the FDD package. Item 1 provides a history of the franchisor's predecessors, and Item 3 discloses litigation involving a predecessor. Hiding or inadequately disclosing the history of predecessor companies can obscure past problems, such as high failure rates or litigation, preventing a full risk assessment. The disclosures here appear to be transparent about the company's lineage.

Potential Mitigations

• A thorough review of Item 1 with your attorney is crucial to understand the full history of the franchise system, including any predecessors.
• If there is a predecessor, a business advisor can help you conduct independent research into its reputation and history.
• Speaking with long-tenured franchisees can provide valuable insight into their experiences under any previous ownership or corporate structures.