Explanation

This risk was not identified. The audited financial statements in Item 21 show Spavia International, LLC (Spavia LLC) has positive net worth and has been profitable for the last three years. A franchisor's financial health is critical as it indicates their ability to provide ongoing support and invest in brand growth.

Potential Mitigations

• It is still prudent to have your accountant review the franchisor's financial statements, including all footnotes, to form an independent opinion on their stability.
• A business advisor can help you assess whether the franchisor's financial resources are adequate to support its current and future number of franchisees.
• Legal counsel should review any financial performance guarantees or support obligations mentioned in the franchise agreement.

Explanation

This risk was not identified. The data in Item 20, Table 3 shows zero terminations, non-renewals, or other cessations of business for the past three fiscal years. Low franchisee turnover is often a positive indicator of the health of a franchise system and general franchisee satisfaction.

Potential Mitigations

• Discussing the franchise relationship with a diverse group of current franchisees from the list in Item 20 is a good practice for due diligence.
• Your business advisor can help you analyze the transfer data in Item 20 to understand the rate at which units are changing hands.
• Legal counsel can assist you in formulating questions for former franchisees to understand their reasons for leaving the system.

Explanation

This risk was not identified. Item 20 data indicates the system is growing at a measured, steady pace, adding a few units each year. This suggests growth is not so rapid as to potentially strain the franchisor's ability to provide adequate training and support to new and existing locations.

Potential Mitigations

• Engaging a business advisor to evaluate the franchisor's support infrastructure in relation to its growth plans can provide valuable insight.
• It is wise to ask current franchisees about the quality and timeliness of the support they receive from the corporate office.
• An accountant should review the franchisor's financials to assess if they are reinvesting sufficiently to support system growth.

Explanation

This risk was not identified. Spavia LLC discloses in Items 1 and 20 that it has been franchising since 2007 and has a network of 59 operating locations. This indicates a mature franchise system with a significant operational history, not a new or unproven concept.

Potential Mitigations

• A discussion with your business advisor can help you evaluate the benefits and drawbacks of joining a mature system versus an emerging one.
• Even with a proven system, speaking with franchisees who have joined at different times can provide a broad perspective on the system's evolution.
• Your attorney should review the franchise agreement for terms that may be more rigid in a mature system.

Explanation

This risk was not identified. The day spa and membership-based wellness services industry is a well-established consumer market and does not appear to be a short-term fad. Assessing the long-term sustainability of the core business concept is a crucial step in evaluating any franchise opportunity.

Potential Mitigations

• A business advisor can help you research the long-term consumer trends and competitive landscape for the wellness and spa industry in your local market.
• Understanding the franchisor's strategy for innovation and adaptation is key; ask them about plans for new services or products.
• Your financial advisor can help you model the business's potential resilience during various economic cycles.

Explanation

This risk was not identified. Item 2 shows an executive team with deep and long-term experience in both franchising and the spa industry. The CEO and President have been with the company since its inception, and other key personnel have relevant experience with other large franchise brands. Experienced leadership is often crucial for effective system management.

Potential Mitigations

• It is always a good practice to research the background of the key executives mentioned in Item 2 with the help of a business advisor.
• Asking current franchisees about their direct experiences with the management team can provide valuable, real-world insight.
• Your attorney can help you understand the implications of any recent changes in the management team.

Explanation

This risk was not identified. A review of Item 1 indicates the franchisor is a privately held, founder-led company and does not appear to be owned by a private equity firm. The ownership structure can influence a franchisor's strategic priorities and timelines, which in turn affects franchisees.

Potential Mitigations

• A business advisor can help you understand the potential pros and cons of different franchisor ownership structures.
• Your attorney should review the assignment clauses in the franchise agreement to understand what happens if the franchisor is sold in the future.
• Asking the franchisor about their long-term vision for the company can provide insight into their strategic plans.

Explanation

This risk was not identified. The FDD states in Item 1 that Spavia LLC has no parent company. This disclosure simplifies the corporate structure and ensures the financial statements presented in Item 21 represent the complete franchising entity you are contracting with.

Potential Mitigations

• Understanding the full corporate structure is always a key piece of due diligence that your attorney can assist with.
• Even without a parent company, your accountant should confirm that the financial statements provided are for the correct legal entity.
• A business advisor can help you verify if any affiliate companies mentioned in Item 1 play a critical role in the franchise system.

Explanation

This risk was not identified. In Item 1, the franchisor discloses that it has no predecessors. This means the historical information provided throughout the FDD, such as litigation and franchisee turnover, pertains directly to the current company, providing a straightforward track record for evaluation.

Potential Mitigations

• Your attorney can help confirm the franchisor's corporate history through public records searches as part of due diligence.
• When speaking with long-term franchisees, it is useful to ask about the company's history to ensure consistency with FDD disclosures.
• A business advisor can help you analyze the implications of a company's history, whether it has predecessors or not.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that must be disclosed. A clean litigation record can be a positive sign regarding the general health of the franchisor-franchisee relationships within the system.

Potential Mitigations

• Despite a clean disclosure, it is a prudent step for your attorney to conduct independent searches for litigation involving the franchisor or its principals.
• Speaking with current and former franchisees is a valuable way to inquire about the history of disputes within the system.
• Understanding the dispute resolution process outlined in the franchise agreement is important, even in the absence of past litigation.