Explanation

This risk was not identified. The franchise system has experienced a net decrease in the number of operating outlets over the last two years, as shown in Item 20. Rapid, unsupported growth is a risk because it can strain a franchisor's ability to provide adequate support. However, the opposite trend of contraction presents its own set of concerns regarding system health.

Potential Mitigations

• A business advisor can help you analyze the reasons for system contraction and what it might imply for brand recognition and support.
• It is wise to discuss the system's recent contraction and future growth plans with the franchisor's management.
• Contacting current franchisees to ask about their perception of the system's health and stability is an important due diligence step.

Explanation

This risk was not identified. Spherion and its predecessors have been in the staffing and franchising business since 1946 and 1956, respectively. It is part of the large, global Randstad organization. This indicates a mature and well-established system, not a new or unproven one. A new system would present higher risks related to unproven models, brand recognition, and support infrastructure.

Potential Mitigations

• With any franchise, your attorney should verify the business experience claims made in Item 1 of the FDD.
• A business advisor can help you research the history and reputation of the franchisor and its parent companies.
• When evaluating a new franchise system, it's critical to assess the management team's prior industry and franchising experience.

Explanation

This risk was not identified. The staffing industry is a well-established and essential component of the modern economy, not a business model based on a short-term trend. Spherion itself has been in business since 1946. Investing in a fad business carries the risk that consumer interest will disappear, leaving you with a worthless business and ongoing contractual obligations.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for a franchise's products or services.
• You should evaluate a franchisor’s plans for innovation and adaptation to stay relevant beyond current trends.
• An accountant can help you model the financial risks if the business is tied to a potentially short-lived trend.

Explanation

This risk was not identified. Item 2 of the FDD shows that Spherion's management team has extensive and long-term experience in both the staffing industry and franchising, with many executives having tenures of over 15-20 years with Spherion or its parent company, Randstad. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• Your business advisor should help you vet the backgrounds of any franchise's key management personnel.
• It's always wise to speak with current franchisees about their direct experiences with the management team's competence and responsiveness.
• An attorney can help you understand if there are any contractual protections should key, experienced managers leave the company.

Explanation

This risk was not identified. The FDD clearly discloses the complex parent company structure, with Randstad N.V. being the ultimate parent. The franchisor's own financials are provided and audited. Some franchise systems may obscure the role of a parent company or fail to provide parent financials when the franchisor itself is thinly capitalized, which can hide significant financial or operational risks.

Potential Mitigations

• An accountant should always review the full corporate structure disclosed in Item 1 and the provided financial statements in Item 21.
• Your attorney can help determine if parent company financial statements should have been included but were not.
• If a parent company provides a guarantee, your attorney should ensure it is a legally binding and meaningful commitment.

Explanation

This risk was not identified. Item 1 discloses Spherion's predecessors. The document appears to provide a clear lineage of the company. In some cases, a franchisor might acquire a system and not fully disclose the predecessor's history of litigation, bankruptcy, or high franchisee turnover, which can hide inherited problems with the brand or operating model.

Potential Mitigations

• Your attorney should always carefully review the predecessor information in Items 1, 3, and 4 of any FDD.
• A business advisor can assist you in conducting independent research on a franchisor's predecessors if there are any concerns.
• It is useful to ask long-term franchisees about their experiences under any previous ownership.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that is required to be disclosed. A pattern of franchisee-initiated lawsuits against the franchisor alleging fraud, misrepresentation, or breach of contract can be a major red flag, potentially indicating systemic problems with the franchisor's business practices or the viability of the system.

Potential Mitigations

• Your attorney should always carefully review any litigation disclosed in Item 3 of an FDD.
• A business advisor can help you research public records for any litigation that may not have met the criteria for disclosure.
• Always ask current and former franchisees about their experiences and whether they have had significant disputes with the franchisor.