Explanation

This risk was not identified. The data in Item 20 shows that the franchise system has been contracting, not expanding rapidly, over the last three years. While this avoids risks associated with over-expansion, such as strained support systems, the contraction itself presents a different set of concerns regarding overall system health.

Potential Mitigations

• Engaging a business advisor to help evaluate a franchisor's growth strategy and its sustainability is a prudent step.
• When considering a franchise, it is wise to have your accountant analyze whether the franchisor's financials support its stated growth plans.
• Your attorney can help you understand the support obligations the franchisor contractually owes you, regardless of system size.

Explanation

This risk was not identified. The FDD indicates that Snap Fitness has been franchising since March 2004 and has a substantial number of operational units. This history suggests the business model is established, not new or unproven. However, other risks related to system trends, such as franchisee turnover, should still be carefully considered.

Potential Mitigations

• A business advisor can help you conduct extensive due diligence on the franchisor's track record and the specific industry.
• Even with an established system, speaking with the earliest franchisees is valuable for understanding the system's evolution.
• Your accountant can assess the franchisor's capitalization and financial stability over its long history.

Explanation

This risk was not identified. The fitness club industry is well-established and has demonstrated long-term consumer demand. While specific fitness trends can be faddish, the general model of a 24/7 access gym is not considered a short-term fad. Your success will depend more on local market factors and execution rather than the fleeting popularity of the core concept.

Potential Mitigations

• Your business advisor can help you assess the long-term market demand for the specific services you plan to offer.
• An evaluation of the franchisor's plans for innovation and adaptation can provide insight into its long-term strategy.
• A financial advisor can help you consider the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD. Item 2 provides biographies of key executives who appear to have extensive experience in the fitness and/or franchising industries. For example, the President of Franchise Operations has been in the fitness industry since 2001. This level of experience can be beneficial for providing knowledgeable support and strategic direction.

Potential Mitigations

• It is still prudent to review the backgrounds of the entire management team with a business advisor.
• Discussing the quality of management's support and leadership with current franchisees provides valuable real-world insight.
• Your attorney can help you understand the contractual obligations of the management team to provide support.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the parent companies of Snap Fitness, and the audited financial statements in Exhibit B are provided on a consolidated basis, which includes the franchisor and its subsidiaries. This level of transparency allows for a more complete assessment of the overall financial health of the entity you are contracting with.

Potential Mitigations

• Your attorney should always verify the corporate structure and ensure all relevant parent and affiliate relationships are disclosed.
• An accountant's review of consolidated financial statements is critical to understanding the complete financial picture.
• Confirming whether any parent company guarantees the franchisor's obligations is an important detail for your attorney to check.

Explanation

This risk does not appear to be present. Item 1 states that the franchisor has no predecessor. This simplifies the due diligence process, as there is no need to investigate the history of a prior company's litigation, bankruptcy, or franchisee relations. Your analysis can focus solely on the track record of the current franchising entity, Snap Fitness, Inc.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor information disclosed in Item 1.
• When a predecessor exists, independent research into its history is a wise step for a business advisor to undertake.
• Speaking with long-term franchisees about their experience under any prior ownership can yield valuable insights.