Explanation

This risk was not identified. The data in Item 20, which tracks franchisee outlets, does not show a high rate of terminations, non-renewals, or other cessations of business. Low turnover can suggest a stable and potentially healthy franchise system where franchisees are generally staying in business. Continual monitoring of this data in future FDDs is still a sound practice for prospective and current franchisees to identify any changing trends in the system's health.

Potential Mitigations

• Your accountant can help you calculate the annual turnover rate from Item 20 data and compare it to any available industry benchmarks.
• Engaging a business advisor to help you formulate questions for current and former franchisees can provide qualitative insight into system satisfaction.
• It is wise to have your attorney review Item 20 and its footnotes for any unusual classifications or trends.

Explanation

The franchise system is large and has been growing steadily, as shown in Item 20. While rapid growth can sometimes strain a franchisor's support systems, Sola's long operating history (since 2005 via its predecessor) and the detailed support structure described in Item 11 suggest they have experience managing expansion. However, you should still verify the current quality of support, as a growing system always presents challenges in maintaining service levels for all franchisees.

Potential Mitigations

• Speaking with a mix of new and established franchisees from the list in Exhibit E is crucial to gauge the current quality and responsiveness of franchisor support.
• A business advisor can help you question the franchisor about their infrastructure for scaling support services to match system growth.
• Your accountant should review the franchisor's financials in Item 21 to assess if they are continuing to invest in support infrastructure.

Explanation

This risk was not identified. Sola has a long operating history, with its predecessor starting in 2005, and a large, established system of over 600 franchised outlets. The management team described in Item 2 appears to have significant experience in both franchising and the relevant industry. A prospective franchisee would be joining a mature and established brand, not an unproven startup, which generally reduces risks related to system viability and franchisor experience.

Potential Mitigations

• It is still prudent to have a business advisor help you research the company's history and the background of its management team.
• Contacting franchisees who have been in the system for many years can provide valuable long-term perspective on the brand's evolution and stability.
• Your accountant can review the long-term financial trends in Item 21 to confirm the system's sustained financial health.

Explanation

This risk was not identified. The Sola Salons business model, which involves leasing studio space to beauty professionals, has been in operation since 2005. This long history and the size of the system suggest sustained demand and a stable business concept rather than a short-term trend or fad. The model is less about a consumer product trend and more about a real estate and service model for small business owners in the beauty industry.

Potential Mitigations

• A business advisor can assist you in researching the long-term trends and stability of the salon suite industry.
• Discussing the business model's resilience to economic shifts with current franchisees can provide valuable real-world insight.
• Your accountant can help you analyze the potential for long-term profitability based on the established nature of the business.

Explanation

This risk was not identified. Item 2 details the business experience of Sola's key officers. The executive team appears to have extensive experience both within the Sola system and at other major franchise companies. This level of management experience typically reduces risks associated with poor strategic decisions, inadequate support systems, or a lack of understanding of the franchise relationship, suggesting a professionally managed organization.

Potential Mitigations

• A business advisor can help you independently verify the backgrounds and track records of the key management personnel listed in Item 2.
• During discussions with current franchisees, it's wise to ask about their direct experiences and the perceived competence of the leadership team.
• Your attorney can review any recent changes in management to assess potential shifts in company strategy or culture.

Explanation

This risk was not identified. The FDD clearly discloses the parent company structure in Item 1, up to the ultimate parent, TSG9 L.P. Furthermore, the franchisor provides audited consolidated financial statements in Item 21 which include its subsidiaries. There is no indication that a required parent company's financial information is being withheld. Sola appears to be compliant with disclosure rules regarding its corporate structure.

Potential Mitigations

• Your accountant should still review the full corporate structure in Item 1 and all financial statements provided in Item 21 to understand the relationships.
• It is prudent for your attorney to confirm that all necessary financial disclosures, including any required parent guarantees or financials, are present.
• A business advisor can help you understand the practical implications of the multi-layered parent company structure on the franchise.

Explanation

This risk was not identified. Item 1 clearly discloses that Sola acquired the assets of a predecessor, Sola Franchise Corporation (SFC), and provides information on SFC's history. The document does not appear to hide or downplay this history. The predecessor's operating history dates back to 2005, which is generally a positive factor. There are no other indications of problematic predecessor issues in other FDD items like Litigation (Item 3) or Bankruptcy (Item 4).

Potential Mitigations

• Your attorney should review the information about the predecessor in Items 1, 3, and 4 to confirm there are no hidden red flags.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable insights into the system's history and evolution.
• A business advisor can help you research the predecessor's public record for any additional information.

Explanation

This risk was not identified. Item 3 of the FDD states, 'No litigation information is required to be disclosed in this Item.' This indicates that in the past year, the franchisor has not been involved in any material legal actions of the types that require disclosure, such as those alleging fraud, misrepresentation, or violations of franchise law. A clean litigation history is a positive indicator of a franchisor's relationship with its franchisees and its business practices.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent public records search for any litigation involving the franchisor or its principals.
• During discussions with current and former franchisees, you should still inquire about any past or pending disputes they are aware of.
• A business advisor can help you research online forums and news archives for any reports of franchisee dissatisfaction or disputes.