Explanation

This risk was not identified. The data in Item 20 does not indicate rapid system growth; in fact, the total number of outlets has decreased over the last two years. While this avoids risks associated with over-expansion, the decline in unit count is itself a significant concern that is addressed under the "High Franchisee Turnover" risk, which suggests potential systemic issues.

Potential Mitigations

• A business advisor should help you analyze any franchise system's growth trends and their implications for brand recognition and support infrastructure.
• It is important to discuss the franchisor's growth and support strategy for the coming years with their management.
• Your accountant can review the franchisor's financials to see if they are investing in infrastructure to support their existing and future franchisees.

Explanation

This specific risk was not identified in the FDD package. Spenga LLC has been offering franchises since 2015, and Item 20 shows a history of dozens of operating units. Therefore, it is not considered a new or unproven franchise system. An established history provides a track record for due diligence but does not eliminate other potential risks.

Potential Mitigations

• When evaluating any franchise, especially a newer one, consulting a business advisor to assess the maturity and stability of its operational systems is recommended.
• Speaking with the earliest franchisees in a system can provide valuable insight into how the franchisor's support has evolved over time.
• Your accountant should review the financial statements to confirm the system's financial track record over several years.

Explanation

This risk was not identified. FDD Item 2 indicates that the key executives of Spenga LLC are also its co-founders and have been with the company since 2015. Many members of the management team are disclosed as having extensive experience in the fitness industry. The leadership appears to have substantial experience in both the industry and in managing this specific franchise system.

Potential Mitigations

• It is always a good practice to research the background and reputation of key franchise executives.
• When speaking with current franchisees, a business advisor would suggest asking about their perception of the management team's competence and vision.
• An attorney can help you verify if there has been any recent, undisclosed turnover in key management positions.

Explanation

This risk was not identified. The information in FDD Item 1 and Item 2 does not indicate that the franchisor, Spenga LLC, or its parent company is owned or controlled by a private equity firm. The management team appears to be comprised of the system's co-founders. Therefore, risks specifically associated with private equity ownership models do not appear to be present.

Potential Mitigations

• During due diligence, a business advisor can help you investigate the ownership structure of any franchisor to understand the key decision-makers' long-term goals.
• Your attorney should always review the franchisor's right to assign the franchise agreement, as this affects who your future partner might be.
• Understanding a franchisor's capital structure with your accountant can provide insight into its strategic priorities.

Explanation

This risk was not identified. FDD Item 1 clearly discloses the parent company, Spenga Ventures LLC, and other affiliated entities. The FDD provides financial statements for the franchisor entity, Spenga LLC. There does not appear to be an attempt to obscure the corporate structure. The financial health of the disclosed entities is a separate risk to be evaluated.

Potential Mitigations

• An attorney should always review the corporate structure disclosed in Item 1 to understand the relationships between the franchisor, parent, and affiliate companies.
• If a parent company exists, it is important to ask your attorney whether a guarantee from the parent is provided or necessary.
• Your accountant should analyze the financial statements of the entity you are contracting with and assess its standalone viability.

Explanation

This risk was not identified in the FDD package. FDD Item 1 indicates the franchisor does not have any predecessors from which it acquired the business. Therefore, risks associated with a negative history from a prior owner of the franchise system do not appear to be applicable.

Potential Mitigations

• An attorney should always carefully review predecessor information in Items 1, 3, and 4 of any FDD.
• If a system was acquired from a predecessor, it would be wise to research the predecessor's track record independently.
• Asking long-tenured franchisees about their experience under any predecessors is a crucial step in due diligence where applicable.

Explanation

This specific risk was not identified. FDD Item 3 does not disclose any pending or recent lawsuits initiated by franchisees against the franchisor alleging fraud, misrepresentation, or similar claims. The disclosed litigation consists of actions brought by the franchisor against its franchisees, which presents a different type of potential risk regarding the franchisor's enforcement policies.

Potential Mitigations

• Your attorney should carefully review any litigation disclosed in Item 3, regardless of who initiated it, to understand the nature of disputes in the system.
• It is wise to ask current franchisees about the nature of the relationship with the franchisor and how disputes are typically handled.
• An attorney can conduct independent searches for litigation involving the franchisor that may not have been required to be disclosed.