Explanation

This risk was not identified. The business model, which involves buying and reselling used consumer electronics, operates in a well-established and competitive market rather than being based on a fleeting trend. However, evaluating the long-term viability and competitive advantages of any business model is a critical part of due diligence, as market dynamics and consumer preferences can shift over time.

Potential Mitigations

• A business advisor can help you research the long-term sustainability and market trends for the specific industry.
• Carefully review the franchisor's plans for innovation and system adaptation as outlined in Item 11.
• Assessing the business model's resilience to economic downturns with your financial advisor is a prudent step.

Explanation

This risk was not identified. FDD Item 2 indicates that the key executives have several years of experience in the used electronics resale business through affiliated companies, dating back as far as 2012. While the current franchisor entity is young, its management appears to have relevant industry and operational experience. It is always important to assess if management's experience aligns with the support required for a growing franchise system.

Potential Mitigations

• A business advisor can help you thoroughly vet the backgrounds of the key management personnel listed in Item 2.
• Speaking with current franchisees about their perception of management's competence and the quality of support is highly recommended.
• Your attorney can help you inquire about the specific roles and franchising experience of each member of the executive team.

Explanation

This risk was not identified in the FDD. Item 1 and the financial statements suggest the franchisor is a privately held limited liability company and do not disclose any ownership by a private equity firm. Understanding the ownership structure is important as it can influence the franchisor's long-term strategies, goals, and financial priorities, which in turn affect franchisee support and profitability.

Potential Mitigations

• Researching the franchisor and its principals online with the help of a business advisor can sometimes reveal associations with investment firms.
• During discussions with the franchisor, you could ask about their long-term capital and ownership strategy.
• Your attorney can review the corporate documents to confirm the ownership structure.

Explanation

This specific risk was not identified. The FDD in Item 1 discloses an affiliate and a predecessor entity, and the Item 21 financial statements are presented on a combined basis, including affiliates, which appears to be transparent. A franchisee should always verify that the entities providing guarantees or key services are financially sound and their obligations are clearly documented.

Potential Mitigations

• Your attorney should confirm that any guarantees mentioned in the FDD are from a financially sound parent or affiliate entity.
• An accountant can help analyze the financial statements of any disclosed parent or affiliate to assess their stability.
• Verify with your business advisor that all entities exercising control or providing essential services have been properly disclosed.

Explanation

This risk was not identified. FDD Item 1 discloses a predecessor entity, but Items 3 and 4 do not report any material litigation or bankruptcy history associated with it. When a franchisor has a predecessor, it is important to understand the full history of the business being acquired, as any unresolved issues or historical weaknesses could potentially carry over to the new franchise system.

Potential Mitigations

• Your attorney can help investigate the business history of any disclosed predecessor entities for potential red flags.
• Speaking with long-term franchisees who may have operated under the predecessor can provide valuable historical context.
• A business advisor can assist with online research and news searches related to the predecessor's past operations.

Explanation

This risk was not identified. FDD Item 3 states that there is no litigation that requires disclosure. While this is a positive indicator, it is important to understand that the disclosure threshold is based on "materiality." A lack of disclosed litigation does not guarantee a dispute-free system, but it avoids the significant red flag that a pattern of franchisee-initiated lawsuits for fraud or breach of contract would represent.

Potential Mitigations

• Your attorney can perform independent searches of court records for litigation involving the franchisor that may not have met the threshold for disclosure.
• Asking current and former franchisees about any past or pending disputes is a key part of due diligence.
• Understanding the dispute resolution processes outlined in Item 17 is critical, as many disputes may be handled through private arbitration and not appear in public court records.