Explanation

This risk was not identified in the provided FDD package. The franchisor's audited financial statements show significant net worth and positive net income, and the auditor's report does not contain any warnings. A financially stable franchisor is better positioned to provide support and grow the brand, while a weak one could fail, jeopardizing your investment.

Potential Mitigations

• An accountant's review of the franchisor's financial statements for at least three consecutive years is essential to assess financial health and trends.
• A business advisor can help you analyze whether the franchisor's revenue is primarily from ongoing royalties versus initial franchise fees.
• Discussing the franchisor's financial condition and support capabilities with existing franchisees is a crucial due diligence step your attorney can guide.

Explanation

This risk was not identified in the FDD package. Item 20 data reveals a very low rate of franchisee terminations, non-renewals, or other cessations. A low turnover rate can be an indicator of franchisee satisfaction, profitability, and a healthy franchise system, suggesting that franchisees are generally succeeding and choosing to remain in the system.

Potential Mitigations

• Your accountant should analyze the turnover rates in Item 20 over the last three years to identify any negative trends.
• It is crucial to contact former franchisees listed in the FDD to understand their reasons for leaving the system.
• Your franchise attorney can help you ask the franchisor pointed questions about the circumstances behind any outlet terminations or cessations.

Explanation

This risk was not identified. The franchisor is a large, established system with significant resources. While the development pipeline is strong, its growth rate does not appear to outpace its capacity to provide franchisee support. Rapid growth in smaller systems can strain resources, leading to inadequate training, site selection assistance, and ongoing operational support for franchisees.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's support staff and infrastructure are growing in line with unit expansion.
• In discussions with existing franchisees, inquire specifically about the quality and timeliness of the support they currently receive.
• Your attorney can help assess whether the franchise agreement contains firm commitments for support levels.

Explanation

This risk was not identified. The FDD indicates that the SpringHill Suites brand has been operating and franchising since the mid-1990s. An unproven system carries higher risks, as it may lack refined operational procedures, established brand recognition, and a demonstrated track record of franchisee success, making it a more speculative investment.

Potential Mitigations

• Thoroughly investigate the operational history of any franchise system with your business advisor.
• Your accountant should carefully scrutinize the financial statements of a newer franchisor for signs of stability and adequate capitalization.
• Legal counsel should review the experience of the management team as detailed in Item 2 of the FDD.

Explanation

This risk was not identified. The SpringHill Suites brand operates in the well-established select-service hotel industry, which is not considered a fad. Investing in a fad business is risky because consumer interest may disappear before you can achieve a return on your investment, leaving you with a worthless business and ongoing contractual obligations.

Potential Mitigations

• A business advisor can help you research the long-term market trends and sustainability of the industry.
• Analyze the franchisor's plans for product and service innovation to gauge adaptability to changing consumer tastes.
• Your accountant can help you model the financial risks of a business with potentially short-lived demand.

Explanation

This risk was not identified. Item 2 of the FDD lists the franchisor's parent company's directors and officers, who possess extensive and long-term experience in the hotel and franchising industries. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher potential for system-wide problems.

Potential Mitigations

• A thorough review of the executive experience detailed in Item 2 of the FDD should be conducted with your business advisor.
• It is wise to ask current franchisees about their perception of the management team's competence and support.
• Your attorney can help you research the public track record of the franchisor's key executives.

Explanation

This risk was not identified. The franchisor, MIF, L.L.C., is a subsidiary of Marriott International, Inc., a publicly-traded corporation, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand, which could affect franchisee support and system stability.

Potential Mitigations

• Your attorney should verify the ownership structure detailed in Item 1 of the FDD.
• If a franchisor is PE-owned, a business advisor can help you research the firm's history with other franchise brands.
• Talking to franchisees about any changes since a PE acquisition is a crucial due diligence step.

Explanation

This risk was not identified. The FDD clearly discloses in Item 1 that the franchisor is a subsidiary of Marriott International, Inc. and provides its audited financial statements. Failing to disclose a parent company or provide its financials when required can obscure the true financial health and control structure of a franchise system, hiding potential risks from prospective franchisees.

Potential Mitigations

• Your attorney can help you verify the corporate structure and identify any undisclosed parent or affiliated entities.
• An accountant should confirm if the provided financials are sufficient or if parent company financials are necessary for a complete risk picture.
• Always question why parent financials are not provided if the franchisor entity appears to be thinly capitalized.

Explanation

This risk was not identified. The FDD discloses a long and stable brand history under its current parent company, Marriott International, Inc., since 1996. A history of multiple predecessors, bankruptcies, or significant litigation can indicate underlying problems with a franchise system's business model or management, which may continue to pose a risk to new franchisees.

Potential Mitigations

• Your attorney should carefully review the predecessor history detailed in Items 1, 3, and 4 of the FDD.
• A business advisor can help you conduct independent research into the history and reputation of any disclosed predecessors.
• It is important to ask long-tenured franchisees about their experiences under any previous ownership.