Explanation

This risk was not identified in the FDD package. Snapology, LLC has been franchising since 2015 and has a significant number of outlets. However, for any new franchise system, a lack of a long track record can increase risks related to the unproven nature of the business model, brand recognition, and franchisor support systems, making thorough due diligence on the founders' experience and system capitalization essential for a prospective franchisee.

Potential Mitigations

• For any emerging franchise, a business advisor can help you conduct extensive due diligence on the management team's experience in both the industry and in franchising.
• It is wise to have an accountant carefully review the financials of a new franchisor to assess its capitalization and financial stability.
• An attorney can help you negotiate more favorable terms to compensate for the higher risk associated with an unproven system.

Explanation

The Snapology business model is focused on curriculum-based learning using popular toys and STEM concepts, which appears to have sustained consumer demand. This FDD does not indicate that the business is based on a short-term fad. However, any business in the children's enrichment space must continuously innovate to remain relevant. A prospective franchisee should always evaluate the long-term viability and the franchisor's commitment to evolving the curriculum and services.

Potential Mitigations

• A business advisor can help you research the children's education and enrichment industry to assess long-term market trends and demand.
• During your due diligence calls, ask current franchisees about the franchisor's history of introducing new programs and updating the curriculum.
• It is prudent to review the franchisor's plans for future service and product development.

Explanation

The executives listed in Item 2 for Snapology and its parent, Unleashed Services, appear to have significant experience in franchising and related industries. For example, the Multi-Brand President has extensive prior experience as a President and CEO for other franchise brands. This depth of experience can be a positive factor, suggesting a strong understanding of franchise operations and support. However, you should still verify the relevance of their experience to this specific concept.

Potential Mitigations

• A business advisor can help you research the backgrounds of the key executives to confirm their track record and success in other franchise systems.
• Ask current franchisees about their direct experiences with the management team and the quality of their leadership and support.
• Engaging an attorney to review the FDD can help assess if management's experience aligns with the franchisor's obligations.

Explanation

The FDD discloses that Snapology is a subsidiary of Unleashed Brands, LLC, and that the ultimate parent, UA Holdings, LLC, guarantees Snapology's performance. The FDD includes the consolidated audited financial statements for UA Holdings, LLC. This provides a degree of transparency into the financial health of the overall organization, which is a positive disclosure practice and mitigates the risk of an undisclosed or financially weak parent company controlling the system.

Potential Mitigations

• Your attorney should review the parent company guarantee to ensure it is robust and unconditional.
• An accountant should analyze the provided parent financials to assess the overall stability of the entity backing your franchise.
• Inquire with your business advisor about the relationship between the parent and the franchisor to understand the operational structure.

Explanation

The franchisor, Snapology, LLC, was established in 2015 and acquired by Unleashed Brands in 2021. Item 3 discloses a 2016 regulatory action against Snapology under previous ownership for selling unregistered franchises in Maryland. While this is a past issue and has been concluded, it forms part of the system's history. The document provides a clear lineage of the company, which is a positive disclosure, but the past regulatory issue is a fact to consider in your due diligence.

Potential Mitigations

• Your attorney should review the details of the past regulatory action in Item 3 to understand its nature and resolution.
• Question the current management about the changes in compliance procedures since the acquisition by Unleashed Brands.
• A business advisor can help you assess if this historical issue has any bearing on the current operational and compliance culture.