Explanation

This risk was not identified in the FDD package. Item 20 data for 2022-2024 shows very low turnover, with zero terminations and only one non-renewal and one franchisor reacquisition out of approximately 70 units. High franchisee turnover can be a major red flag indicating systemic problems, such as lack of profitability or poor franchisor support. The stability shown in this FDD is a positive indicator.

Potential Mitigations

• As a best practice, engaging a business advisor to review franchisee turnover data in any FDD is a key due diligence step.
• Discussing the reasons for any departures with former franchisees, whose contact information is in Item 20, can provide valuable insights.
• Your accountant can help you analyze the turnover rates over several years to identify any negative trends.

Explanation

This risk was not identified in the FDD package. Item 20 data shows the number of franchised outlets has been stable, fluctuating between 70 and 71 units over the last three years. Rapid growth can strain a franchisor's ability to provide adequate support. The stable size of this system suggests this is not a current concern.

Potential Mitigations

• A business advisor can help evaluate whether a franchisor's growth plans are aligned with their capacity to provide franchisee support.
• Reviewing a franchisor's financial statements with an accountant can help determine if they have the resources to support future growth.
• It is wise to ask existing franchisees about the quality and timeliness of support provided by the franchisor.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the system has deep roots, with predecessors franchising since 1974 and the business operating since 1968. A new or unproven franchise system carries higher risks due to the lack of a track record and potentially underdeveloped support systems. Slumberland is a mature, long-established franchise system.

Potential Mitigations

• When evaluating any franchise, it is prudent to have a business advisor assess the franchisor's history and experience.
• Speaking with the earliest franchisees in a system can provide your attorney with valuable perspective on its evolution and stability.
• For any new system, an accountant should scrutinize the capitalization and financial projections very carefully.

Explanation

This risk was not identified in the FDD package. The franchised business is the retail sale of furniture, mattresses, and home accessories. This is a traditional and established retail sector, not a business model based on a new or fleeting trend. A fad business carries the risk of declining consumer interest, which could jeopardize your long-term investment.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for any franchise concept.
• It is important to evaluate a business's resilience to economic cycles and changing consumer tastes with your financial advisor.
• Understanding the franchisor's plans for innovation and product development is key to assessing long-term viability.

Explanation

This risk was not identified in the FDD package. Item 2 discloses a management team with extensive and long-term experience within the Slumberland system, with some executives having been with the company for decades. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees. This does not appear to be a concern here.

Potential Mitigations

• Thoroughly vetting the background and specific franchise industry experience of a franchisor's management team is a critical due diligence step for any potential franchisee.
• A business advisor can assist in evaluating the capabilities of the leadership team.
• Asking existing franchisees about their confidence in the management team provides crucial, real-world insight.

Explanation

This risk was not identified in the FDD package. The information in Items 1 and 2 suggests long-term, stable ownership, with multiple members of the Larson family in key roles, rather than ownership by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the system.

Potential Mitigations

• For any franchise, a business advisor can help research the ownership structure and the owner's track record with other brands.
• It is wise to ask existing franchisees about any recent changes in ownership and the impact on support and system direction.
• Your attorney can review the Franchise Agreement for terms related to the franchisor's right to sell or assign the system.

Explanation

This risk was not identified in the FDD package. The relationship between Slumberland Franchising, Inc. and its key affiliate, Slumberland, Inc., is disclosed in Items 1 and 21. While the franchisor entity itself has weak financials, the structure and dependence on the affiliate are explained. Failure to disclose a parent or key affiliate can hide significant risks from a potential franchisee.

Potential Mitigations

• An experienced franchise attorney can help you understand the corporate structure and the relationships between the franchisor and its affiliates.
• Your accountant should review the financials of all related entities, if provided, to get a complete picture of the system's financial health.
• It is important to clarify which entity is responsible for key obligations like support, supply, and training.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a clear history of predecessor entities that granted franchises, and their history is integrated into the overall narrative of the system. Inadequate disclosure of predecessor history can obscure past issues like litigation or high franchisee failure rates.

Potential Mitigations

• Your attorney should always carefully review the predecessor history disclosed in Items 1, 3, and 4 of any FDD.
• Engaging a business advisor to research the history and reputation of any predecessor entities can provide additional context.
• If possible, speaking with long-term franchisees who operated under a predecessor can offer valuable historical perspective.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." A pattern of lawsuits against the franchisor, particularly those alleging fraud or misrepresentation, is a significant red flag that can indicate systemic problems within the franchise relationship or sales process.

Potential Mitigations

• Having your attorney carefully review the litigation history in Item 3 of any FDD is a critical due diligence step.
• It is wise to ask the franchisor for context on any disclosed litigation.
• Your attorney can conduct independent searches for litigation involving the franchisor that may not have met the threshold for disclosure.