Explanation

This risk was not identified in the FDD Package. Item 20 data, which tracks franchisee exits, shows no terminations, non-renewals, or other cessations of business for the reported periods. High turnover can be a major red flag indicating systemic problems, such as a lack of profitability or poor franchisor support. While the system is very young and has limited history, the currently available data does not suggest a turnover issue.

Potential Mitigations

• It is still crucial to speak with a representative number of current franchisees from the list in Exhibit C to gauge their satisfaction and profitability.
• A business advisor can help you formulate questions for franchisees about their operational and financial experience with the system.
• Your accountant can help you analyze the Item 20 data in future FDDs to monitor for any developing negative trends.

Explanation

This risk was not identified in the FDD Package. The business model, providing Applied Behavioral Analysis (ABA) and speech therapy services, is based on established healthcare needs rather than a short-term trend or fad. The demand for such services is generally considered stable and growing, suggesting a sustainable market. Therefore, the risk of the business becoming obsolete due to shifting consumer interests appears low.

Potential Mitigations

• A business advisor can help you research the long-term demand and competitive landscape for autism and speech therapy services in your specific local market.
• You should still develop a business plan with your accountant that accounts for potential shifts in healthcare regulations or reimbursement models.
• Discuss with your attorney any risks associated with a highly regulated industry.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a privately held LLC and does not disclose any ownership by a private equity firm. The risk of business decisions being driven by short-term investor return horizons, which is often associated with private equity ownership, does not appear to be present based on the provided documents.

Potential Mitigations

• It is still wise to ask your attorney to confirm the ownership structure of the franchisor LLC.
• During discussions with existing franchisees, you could inquire if they are aware of any outside investment groups influencing the company.
• Your business advisor can help you understand the potential pros and cons of different franchisor ownership structures for future reference.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly states, “We do not have any parents or predecessors.” The franchisor entity appears to be a standalone company without a larger corporate parent whose financial health or operational decisions could indirectly affect your franchise.

Potential Mitigations

• Your attorney can conduct a corporate search to verify the franchisor's status as a standalone entity.
• Reviewing the affiliate relationships described in Item 1 with your accountant is important to understand the complete organizational structure.
• It is good practice to ask a franchisor if they anticipate any changes to their ownership structure in the near future.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD clearly states, “We do not have any parents or predecessors.” Therefore, there are no historical business challenges, litigation, or bankruptcy issues from a prior entity that could be concealed or carry over to the current franchisor.

Potential Mitigations

• Your attorney can verify the franchisor's formation date and history to confirm the absence of any predecessors.
• In any franchise review, it remains crucial for your business advisor to assess the direct operating history of the franchisor and its affiliates.
• Understanding the concept of predecessors is valuable for evaluating other franchise opportunities you may consider.

Explanation

This risk was not identified in the FDD Package. Item 3 states, “No litigation is required to be disclosed in this Item.” This indicates the franchisor is not currently involved in, nor has recently concluded, any material litigation with franchisees, suppliers, or government agencies. The absence of lawsuits alleging fraud, breach of contract, or statutory violations is a positive indicator for a prospective franchisee.

Potential Mitigations

• While none is disclosed, your attorney can conduct an independent search for litigation involving the franchisor or its principals as a final check.
• It is still important to ask current and former franchisees about any disputes they may have had, even if they did not result in litigation.
• Understanding the types of litigation disclosed in other FDDs can provide valuable context when evaluating franchise systems.