Explanation

This risk was not identified in the FDD package. Item 20 data shows only one franchisee in the system, and that franchisee has not terminated, ceased operations, or failed to renew. Generally, high turnover can be a significant red flag, potentially indicating systemic problems such as low franchisee profitability, inadequate support, or an unsustainable business model. A stable and growing franchise system is a positive indicator for prospective franchisees.

Potential Mitigations

• Your business advisor can help you calculate and analyze the turnover rates presented in any FDD to compare them against industry averages.
• It is always a good practice to contact former franchisees listed in the FDD to understand their reasons for leaving the system.
• Engaging an attorney to review the details in Item 20 can help you spot any concerning trends or patterns.

Explanation

This specific risk was not identified in the FDD. Item 20 does not show a pattern of rapid franchise unit growth that might outpace the franchisor's ability to provide support. In general, while growth is positive, excessively fast expansion can strain a franchisor's resources, potentially leading to diluted support, training, and quality control for all franchisees. Evaluating a franchisor's capacity to manage growth is a key part of due diligence.

Potential Mitigations

• During your due diligence, asking a franchisor about their strategic growth plans and how they intend to scale support can provide valuable insight.
• A business advisor can help you assess whether a franchisor's support infrastructure seems adequate for its projected growth.
• Speaking with franchisees in rapidly growing systems can reveal whether the quality of support has been maintained, a task your attorney can assist with.

Explanation

This risk was not identified in the FDD. The portable storage industry is established and does not appear to be based on a short-term trend or fad. When considering any franchise, it's important to assess the long-term market demand for its products or services. A business based on a fad faces the risk of declining consumer interest, which could jeopardize your investment even if your contractual obligations to the franchisor continue.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand and sustainability of the industry.
• Evaluating a franchisor’s commitment to research and development can provide insight into its plans for staying relevant over time.
• It's wise to discuss with your financial advisor how a business model might perform through different economic cycles and shifting consumer trends.

Explanation

This risk is not present, as Item 1 does not indicate that the franchisor is owned by a private equity firm. When a franchisor is PE-owned, there can be a risk that decisions are driven by short-term financial targets to maximize investor returns, which may not always align with the long-term health of the franchisees. This can sometimes manifest in increased fees, reduced support, or a quick sale of the franchise system.

Potential Mitigations

• If a franchisor is owned by a private equity firm, it's advisable to have a business advisor research the firm's history with other franchise brands.
• Your attorney should review the franchise agreement for any clauses that make it easy for the franchisor to sell the system without your consent.
• Speaking with franchisees who have been through a PE acquisition can offer valuable perspectives on changes to the system.

Explanation

This specific risk was not identified, as the FDD discloses the franchisor and its affiliates in Item 1. Generally, if a franchisor is a small or thinly capitalized subsidiary of a larger parent company, federal rules may require the parent's financial statements to be included. Failure to disclose a parent or provide required financials can obscure the true financial stability and backing of the franchise system, hiding significant risks from a prospective franchisee.

Potential Mitigations

• Your attorney should verify the corporate structure and identify any parent companies or controlling entities.
• If a parent company guarantee is provided or required, an accountant must review the parent's financial statements for stability.
• It is important to understand the full corporate structure to assess where the ultimate financial responsibility and operational control lie.

Explanation

This risk was not identified in the FDD package. The document does not mention any predecessors. When a franchise system has been acquired from a predecessor, it is important to understand the history of that prior entity. A prospective franchisee should look for any negative history, such as litigation, bankruptcy, or high franchisee turnover under the predecessor, as these could indicate inherited systemic problems that may still affect the franchise today.

Potential Mitigations

• Your attorney should carefully review Item 1 of any FDD to identify disclosed predecessors.
• When a predecessor exists, conducting independent research on that entity's history can provide a more complete picture of the franchise system's past.
• A business advisor can help you question current long-term franchisees about their experiences under any previous ownership.

Explanation

This risk was not identified in the provided FDD. Item 3 states there is no litigation that requires disclosure. A pattern of lawsuits, especially those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may suggest systemic problems with the franchisor's business practices or franchisee relationships. Similarly, a high volume of litigation initiated by the franchisor against franchisees could indicate an overly aggressive or punitive culture.

Potential Mitigations

• An experienced franchise attorney should always be engaged to carefully review the details of any litigation disclosed in Item 3.
• It is prudent to discuss any disclosed litigation with current and former franchisees to get their perspective on the issues.
• A business advisor can help you research public records for additional context on any disclosed legal proceedings.