Explanation

The risk of a franchisor expanding too quickly and outpacing its ability to provide support was not identified. The data in Item 20 indicates the Sleep Inn system size has been stable or slightly shrinking in recent years, not growing rapidly. However, you should still assess if the franchisor's existing support infrastructure is adequate for the current number of franchisees, as this remains a critical factor for your success.

Potential Mitigations

• It is wise to ask existing franchisees about the current quality and responsiveness of the franchisor's support system.
• Your business advisor can help you assess whether the franchisor's described support structure in Item 11 seems adequate for a system of its size.
• During your due diligence, confirm with the franchisor what their current and future plans are for franchisee support and training resources.

Explanation

This risk was not identified in the FDD package. Choice Hotels International, Inc. (Choice Hotels) is a large, publicly-traded company with a very long history in the hotel industry, and the Sleep Inn brand itself has been franchising since 1987. The system is well-established and mature, not a new or unproven concept. This longevity can provide brand recognition and more developed operational systems, which is a positive factor for a prospective franchisee.

Potential Mitigations

• When evaluating any franchise, it is beneficial to have a business advisor help you research the brand's history and its competitive position in the current market.
• Even with established brands, speaking with current franchisees provides valuable insight into the system's present-day relevance and challenges.
• Your attorney can help you understand the full history of the franchisor and any predecessors as detailed in Item 1.

Explanation

This risk does not appear to be present. The Sleep Inn brand operates in the traditional mid-scale hotel sector, which is a well-established segment of the lodging industry. The business model is not based on a new or fleeting trend. While the hospitality industry evolves, this particular concept is not considered a fad. A prospective franchisee should still consider long-term industry trends and how the brand is positioned to compete in the future.

Potential Mitigations

• Consulting with a business advisor who specializes in the hospitality industry can help you assess the long-term market demand for this hotel segment.
• Analyzing the franchisor's plans for innovation and brand updates, as described in Item 11, can provide insight into its future competitiveness.
• Discussing the brand's resilience to economic cycles and changing consumer preferences with existing franchisees is a prudent step.

Explanation

This risk was not identified in the FDD. Item 2 provides biographies for a large executive team at Choice Hotels. Many of these individuals have extensive and long-term experience in the hospitality industry and in franchising, with many having held senior roles at Choice Hotels or other major hotel companies like Hilton and Marriott. The management team appears to be highly experienced and stable.

Potential Mitigations

• It is always a good practice to have your business advisor review the backgrounds of the key executives listed in Item 2.
• When speaking with current franchisees, you can inquire about their direct experiences and the perceived competence of the franchisor's management and support teams.
• Your attorney can help you research the public records of key management for any undisclosed issues of concern.

Explanation

This risk was not found in the FDD package. Item 1 indicates that the franchisor, Choice Hotels International, Inc., is a publicly-traded corporation. There is no disclosure of ownership by a private equity firm. This means decisions may be less likely to be driven by short-term exit strategies often associated with private equity ownership. Instead, management may be more focused on the long-term health and sustainable growth of the brand.

Potential Mitigations

• Confirming the franchisor's ownership structure and any recent changes with your business advisor is a valuable due diligence step.
• Your attorney can review public filings to verify the ownership structure of a publicly-traded franchisor like Choice Hotels.
• Understanding the ownership model helps in assessing the likely long-term strategic priorities of the franchisor, a task your accountant can assist with.

Explanation

This risk was not identified. The franchisor, Choice Hotels International, Inc., appears to be the parent company and is a publicly-traded entity. Its audited financial statements are provided in Exhibit C as required. There is no indication of an undisclosed parent company whose financials or influence are being shielded from view. The corporate structure appears to be transparent in the FDD.

Potential Mitigations

• Your accountant should always verify that the financial statements provided in Item 21 belong to the actual entity you are contracting with.
• If a franchisor is a subsidiary, your attorney should confirm whether a guarantee from the parent company is provided and if it's adequate.
• Engaging a business advisor to research the corporate structure can help ensure there are no hidden entities controlling the franchisor.

Explanation

This specific risk was not identified. Item 1 provides a detailed history of the franchisor, including its origins as Quality Courts Motels, Inc., various name changes, and the significant acquisition of Radisson Hotels Americas. The disclosure appears to be comprehensive and does not seem to obscure any negative history related to predecessors. The information provided allows for a clear understanding of the company's lineage.

Potential Mitigations

• A review of the franchisor's history and any predecessor entities disclosed in Item 1 with your attorney is a key part of due diligence.
• If a franchisor has predecessors, it can be beneficial to ask long-term franchisees about their experiences before and after any acquisitions.
• A business advisor can help you research the public history of any predecessor companies for a more complete picture of the system's past performance.