Explanation

Because Social Play Haus is a new franchisor that began offering franchises in March 2023, there are no existing or former franchised outlets to report in Item 20. While this means there is no history of turnover, it also indicates a lack of an operational track record for the franchise system itself. The absence of data makes it difficult to assess franchisee satisfaction, profitability, or potential systemic issues based on the experiences of others.

Potential Mitigations

• A business advisor can help you assess the risks inherent in joining a new system with no franchisee operating history.
• In your financial projections, it is important to incorporate a higher contingency for unforeseen challenges with the help of your accountant.
• Discuss with your attorney the possibility of negotiating more favorable terms to compensate for the increased risk of a new, unproven system.

Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support. As Social Play Haus is a new franchisor with no existing franchisees, this specific risk is not currently present. However, you should monitor projected growth rates and the franchisor's plans to scale its support infrastructure.

Potential Mitigations

• During discussions, you should ask the franchisor about their controlled growth strategy and how they plan to expand their support team.
• A business advisor can help you evaluate the franchisor’s capacity for future growth and support.
• It is important to have your attorney review the franchisor's contractual support obligations to understand what is guaranteed.

Explanation

This risk was not identified in the FDD package. A fad business is one tied to a fleeting trend, posing a risk to long-term viability. Social Play Haus, a 'family friendly beer garden with a modern play area,' combines established concepts (events, food, beverages) with the growing demand for family-friendly social spaces. While its specific execution is new, the core components do not appear to be a short-term fad.

Potential Mitigations

• Engaging a business advisor to research the long-term market demand for family-oriented entertainment and dining concepts in your specific area is recommended.
• You should ask the franchisor about their plans for future innovation and adaptation to changing consumer tastes.
• Your financial advisor can help assess the business model's resilience to economic shifts and evolving trends.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a privately held LLC and does not mention ownership by a private equity firm. Private equity ownership can introduce risks related to prioritizing short-term returns over long-term system health. The current ownership structure does not present this specific risk, though the agreement does allow the franchisor to sell the system.

Potential Mitigations

• Your attorney should review the assignment clause in the Franchise Agreement to understand your rights if the system is sold in the future.
• It is good practice to ask the franchisor about their long-term vision and any plans for future changes in ownership.
• A business advisor can help you understand the potential implications of different ownership structures in franchising.

Explanation

This risk was not identified in the FDD package. The franchisor is a startup entity, but Item 1 clearly discloses its affiliates, including Prosocial Play Inc., which owns the licensed marks, and Social Play Haus LLC, which provides some supplies. Item 21 provides audited financials for the franchisor entity as required. There is no indication of a hidden or undisclosed parent company whose financials would be material to your decision.

Potential Mitigations

• Your attorney can help you understand the relationship and agreements between the franchisor and its disclosed affiliates.
• A review of the affiliate relationships with your accountant is important to identify any potential conflicts or dependencies.
• Asking the franchisor to clarify the roles and financial stability of each affiliate is a prudent step.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor, Social Play Haus, does not have any predecessors. A predecessor is a company from which the franchisor acquired the business concept. Therefore, there is no hidden history of litigation, bankruptcy, or franchisee failure associated with a prior version of the franchise system that you need to be concerned about.

Potential Mitigations

• It is always good practice to have your attorney confirm that the information in Item 1 regarding predecessors is complete and accurate.
• You can perform independent online searches for the brand name to see if it was operated by other entities in the past.
• A business advisor can help you understand the implications of a business having or not having a predecessor entity.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This indicates that neither the franchisor nor its key personnel are currently involved in, or have recently concluded, legal actions related to fraud, misrepresentation, or other franchise law violations. The absence of such litigation is a positive indicator, especially for a new system.

Potential Mitigations

• While the FDD is clean, it is still a good practice to have your attorney conduct a public records search for any litigation involving the franchisor or its principals.
• It is important to ask the franchisor directly about their approach to resolving disputes with franchisees, should they arise.
• Your business advisor can guide you on including dispute resolution history in your due diligence questions for other franchisors you may consider.