Explanation

This risk was not identified. The audited financial statements for Spavia International, LLC ("Spavia") show a history of profitability from 2022-2024, with growing revenues and positive members' equity. While financial stability is a key risk in franchising, as a weak franchisor can fail to provide support or may even go bankrupt, Spavia's disclosed financials appear stable.

Potential Mitigations

• Your accountant should review the complete audited financial statements, including all footnotes, to form an independent opinion on the company's financial health.
• A business advisor can help you understand how the franchisor's financial performance might impact its ability to support its franchisees long-term.
• In discussions with current franchisees, ask about their perception of the franchisor's financial stability and ability to invest in the brand.

Explanation

This risk was not identified. The data in Item 20, Tables 1-3, shows a stable and growing franchise system with zero terminations, non-renewals, or stores that ceased operations for other reasons over the last three years. While high turnover is a major red flag indicating systemic problems, this FDD reports very low franchisee attrition, which is a positive indicator for system health.

Potential Mitigations

• When speaking with current and former franchisees, it is still prudent to ask about their experiences and the reasons any franchisees have left the system.
• Your attorney can help you formulate questions to ask the franchisor about the circumstances surrounding any franchisee transfers.
• Continually monitor franchisee satisfaction and system stability through available channels, as a business advisor would recommend.

Explanation

This risk was not identified. Item 20 shows steady, manageable growth from 52 to 59 units over three years, which does not suggest an uncontrolled expansion. The financial statements in Item 21 show profitability and positive cash flow, indicating Spavia has the resources to support its current growth trajectory. Uncontrolled growth can strain a franchisor's support systems, but that does not appear to be the case here.

Potential Mitigations

• Engaging a business advisor to assess the franchisor's support infrastructure in relation to its growth plans is a sound strategy.
• Ask current franchisees about the quality and timeliness of the support they receive from the corporate office.
• Your accountant can analyze the franchisor's allocation of resources to support functions versus new franchise sales.

Explanation

This risk was not identified. Spavia has been in business and franchising since 2007, providing it with a long operating history and a significant track record. The franchise system is mature, with 59 operating units as of year-end 2024. An unproven system carries higher risks of failure and inadequate support, but Spavia appears to be an established and experienced franchisor.

Potential Mitigations

• Even with a mature system, it is wise to consult with your business advisor to analyze its competitive position and long-term viability.
• Discuss the evolution of the business model and support systems over the years with long-tenured franchisees.
• An attorney can still review the entire FDD package for any signs of recent instability despite the system's age.

Explanation

This risk does not appear to be present. The day spa industry, focused on massage and skin care, serves a consistent consumer demand for wellness and personal care services that is not typically tied to short-lived trends. Spavia's business model, operating since 2007 with a membership component, suggests a focus on recurring revenue and long-term customer relationships rather than a temporary fad.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term consumer demand for day spa services in your specific area.
• Inquire with current franchisees about customer loyalty and the sustainability of the membership model.
• Analyzing local competition and market trends with a marketing professional can help validate the business concept's durability.

Explanation

This risk was not identified. The Chief Executive Officer and President have been with Spavia since its formation in 2007, indicating stable and experienced top leadership. While some other C-level roles have seen more recent hires, they bring significant prior experience from other large franchise systems. Inexperienced management can be a major risk, but the leadership team appears to have a solid foundation in both the industry and franchising.

Potential Mitigations

• Discuss the management team's accessibility and effectiveness with a range of current franchisees.
• A business advisor can help you assess the strength and depth of the entire management team, not just the founders.
• It is always a good practice to research the professional backgrounds of key executives online.

Explanation

This risk was not identified. The FDD does not disclose ownership by a private equity firm. The principal owners appear to be the founders, who have been managing the company since its inception in 2007. Therefore, the specific risks associated with PE ownership, such as a focus on short-term returns or a quick sale of the company, do not appear to be present.

Potential Mitigations

• During due diligence, it's still worthwhile to ask the franchisor about their long-term goals for the company.
• Your attorney can verify the ownership structure through a review of corporate records.
• A business advisor can help you understand the implications of any future sale of the franchise system, regardless of the current ownership type.

Explanation

This risk was not identified. The FDD does not disclose a parent company. Spavia International, LLC appears to be the primary operating and franchising entity. In cases where a franchisor is a subsidiary, the parent's financials can be critical for assessing overall stability. Since no parent is disclosed, this specific risk is not applicable.

Potential Mitigations

• Your attorney can confirm the company's corporate structure and verify the absence of a controlling parent entity.
• An accountant should review the provided financials to ensure they stand on their own without reliance on an undisclosed entity.
• Always ask the franchisor to clarify its relationship with all affiliated companies mentioned in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessors. This means the company did not acquire the franchise system from a prior entity, so there is no hidden history of litigation, bankruptcy, or franchisee failures under a different name that you need to be concerned about. The history presented in the FDD is the complete history of the system.

Potential Mitigations

• An attorney can review the FDD to confirm the franchisor's statement about having no predecessors.
• Due diligence on the founders' business history can provide additional context, a task your business advisor can assist with.
• Speaking with the longest-tenured franchisees can help verify the historical narrative of the company.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation must be disclosed in this Item." This is a positive sign, as it indicates an absence of material lawsuits involving the franchisor, its predecessors, or key personnel, particularly claims of fraud or breach of contract brought by franchisees. A pattern of such litigation would be a significant red flag.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the threshold for disclosure in Item 3.
• When speaking with current and former franchisees, you should still inquire about any disputes they are aware of within the system.
• A business advisor can help you evaluate the overall health of franchisor-franchisee relations based on your discussions.