Explanation

This risk was not identified in the FDD package. Stratos is a new franchise system with no operating franchisees as of the FDD issuance date, so no franchisee turnover data exists. While this avoids the risk of high turnover, the complete lack of a franchisee performance track record is itself a significant risk you must consider. High turnover is generally a major red flag indicating potential systemic problems with profitability, support, or franchisee satisfaction.

Potential Mitigations

• Your business advisor should help you evaluate the inherent risks of joining a new system with no franchisee history.
• Speaking with the franchisor's management team about their strategies for franchisee success and retention is a critical step.
• An accountant can help you model a range of financial outcomes, given the absence of any historical franchisee performance data.

Explanation

This risk was not identified, as FDD Item 20 shows Stratos has no history of rapid franchise growth. The system is new and has not yet established any franchised outlets. While this avoids the specific risks associated with over-expansion, it introduces the different set of risks related to being an early adopter in an unproven franchise system. Rapid growth can strain a franchisor's ability to provide adequate support.

Potential Mitigations

• It's beneficial to discuss the franchisor's controlled growth plan and how they intend to scale support systems with a business advisor.
• Your attorney should review any development agreements to understand future growth obligations.
• Asking the franchisor about their capitalization and resources for supporting future growth is a prudent step to take with your accountant.

Explanation

This risk was not identified in the FDD package. The business of providing private jet charter and flight reservation services is part of the established private aviation industry. While it is a niche and competitive market, it does not appear to be based on a short-lived trend or fad. The primary risk is market competition and economic sensitivity rather than the business concept becoming obsolete.

Potential Mitigations

• Engaging a business advisor to research the long-term market trends and competitive landscape for private aviation services is recommended.
• Your accountant can help you assess the business model's resilience to economic cycles and downturns.
• You should develop a robust marketing plan to establish a strong local presence.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that Stratos is owned or controlled by a private equity firm. The ownership appears to rest with its founding management. Therefore, the specific risks associated with PE ownership, such as a focus on short-term returns over long-term system health or a quick resale of the brand, do not appear to be present here.

Potential Mitigations

• Your attorney should always verify the ownership structure disclosed in Item 1 through public records.
• It is good practice to ask about the long-term vision for the company, regardless of ownership structure.
• A business advisor can help you understand the pros and cons of different franchise ownership structures.

Explanation

This risk was not identified in the FDD package. Item 1 explicitly states that Stratos does not have any predecessors. Therefore, the risks associated with an undisclosed or troubled history from a prior company that owned the brand or system are not applicable in this case. Your evaluation should focus on the risks of it being a new entity.

Potential Mitigations

• Your attorney should still confirm the corporate history through public records to ensure the predecessor disclosure is accurate.
• It is wise to ask management about the history of the affiliate company that has been operating since 2006.
• A business advisor can guide you in researching the brand's history, even if there's no formal predecessor.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. For a new franchisor, this is not unusual. However, a pattern of litigation, especially claims of fraud or breach of contract brought by franchisees, is a major red flag in more established systems as it can indicate systemic problems.

Potential Mitigations

• Your attorney can conduct a public records search to verify if any litigation exists that might not have met the technical disclosure threshold.
• It is good practice to ask management directly if they are involved in any disputes, even if not formally disclosed.
• A business advisor can help you establish a positive and communicative relationship with the franchisor to avoid future disputes.