Stretch Zone
Initial Investment Range
$138,745 to $528,349
Franchise Fee
$72,590 to $267,750
The Stretch Zone business that you will own and operate is a business that offers advanced certified practitioner-assisted stretching to individuals.
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Stretch Zone April 30, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor, Stretch Zone Franchising LLC (Stretch Zone LLC), has significant signs of financial instability. The audited 2024 financial statements show a net loss of over $2.6 million and a total member's deficit exceeding $54 million. A footnote also discloses that as of year-end 2024, the company was not in compliance with its loan covenants, requiring a waiver from its lender. The state of Virginia explicitly flags the franchisor's deficit as a special risk factor, indicating severe financial weakness.
Potential Mitigations
- Your accountant must conduct a deep analysis of the audited financial statements, including all footnotes regarding debt covenants and liquidity.
- Discuss the implications of the negative net worth and loan covenant default with your franchise attorney to understand the stability risk.
- It is crucial to ask the franchisor for their detailed plan to address the ongoing losses and achieve profitability.
High Franchisee Turnover
High Risk
Explanation
Item 20 data indicates an exceptionally high rate of franchisee turnover. In 2024, there were 99 franchisee-to-franchisee transfers, which is a 30% turnover rate against the starting base of 330 units. Concurrently, the FDD reports zero terminations, non-renewals, or other cessations. This unusual pattern strongly suggests that units closing or exiting the system may be getting classified as 'transfers,' potentially obscuring a high rate of franchisee failure or dissatisfaction. Such a high churn rate is a critical red flag.
Potential Mitigations
- With your business advisor, contact a significant number of former franchisees from the 'transfer' list in Item 20 to understand why they left the system.
- Your accountant should analyze the turnover rates over the past three years to confirm the trend of high churn.
- In discussions with the franchisor, it is important to ask for a direct explanation for the high volume of transfers versus zero reported cessations.
Rapid System Growth
High Risk
Explanation
The system is undergoing rapid expansion, growing from 153 to 377 franchised units in three years, with 108 more projected for the next year. This aggressive growth, when viewed alongside the company's significant financial deficit, recent loan covenant default, and extremely high franchisee turnover rate, suggests that support infrastructure may be severely strained. The franchisor may be selling franchises faster than it can sustainably support them, which poses a risk to your long-term success.
Potential Mitigations
- Asking the franchisor for specifics on how they have scaled their support staff and systems to manage this rapid growth is a key due diligence step.
- A discussion with a wide range of new and established franchisees about the current quality and responsiveness of support is highly recommended.
- A business advisor can help you assess whether the franchisor's growth seems controlled or potentially reckless given the financial data.
New/Unproven Franchise System
Low Risk
Explanation
This specific risk was not identified in the FDD package. Stretch Zone LLC began franchising in 2016 and now has hundreds of locations, so it is not considered a new or unproven system. However, a new business model, regardless of age, carries inherent risks related to market acceptance and operational refinement. It is always important to assess the maturity and stability of the system you are joining.
Potential Mitigations
- Your business advisor can help you research the brand's history and its performance through different economic cycles.
- Speaking with franchisees who have been with the system for many years provides valuable insight into its evolution and stability.
- Your attorney should review the franchisor's litigation and bankruptcy history in Items 3 and 4 for any signs of past instability.
Possible Fad Business
Medium Risk
Explanation
The business of practitioner-assisted stretching is part of the growing wellness industry but could be subject to shifting consumer trends. The market includes competition from various established providers like physical therapists, chiropractors, and gyms, as disclosed in Item 1. The long-term sustainability of a standalone assisted stretching studio model may carry some risk if the trend's popularity wanes over the 10-year contract term, potentially impacting your return on investment.
Potential Mitigations
- Conducting independent market research with a business advisor to assess the long-term demand for this specific service is a prudent step.
- Evaluate the franchisor's plans for innovation and service diversification to adapt to potential market changes.
- Consider the business's resilience in different economic climates with your financial advisor.
Inexperienced Management
Low Risk
Explanation
This specific risk was not identified in the FDD package. The executive team described in Item 2 appears to have considerable experience in the franchise industry, with backgrounds at other large franchise systems. Inexperienced leadership can pose a risk to a franchise system's stability and ability to provide effective support, but that does not appear to be a primary concern here based on the disclosures.
Potential Mitigations
- A business advisor can help you conduct further due diligence on the backgrounds of the key management team members.
- Asking current franchisees about their direct experiences and the quality of support from the leadership team can provide valuable context.
- It is wise to have your attorney investigate if there has been recent high turnover in key management positions.
Private Equity Ownership
High Risk
Explanation
The franchisor is owned by a private equity firm, Princeton Equity Group, LLC. This ownership structure can introduce risks, as PE firms often have a primary goal of maximizing investor returns over a fixed period. This may lead to decisions that benefit short-term profitability, such as rapid franchise sales or cost-cutting on support, potentially at the expense of long-term franchisee success. The franchisor's significant financial losses and high franchise sales volume could be indicative of this dynamic.
Potential Mitigations
- It would be beneficial to research the private equity firm's history and reputation with other franchise brands they have owned.
- Discussing any changes in support or system focus since the PE acquisition with franchisees who were in the system pre-acquisition is critical.
- Your attorney should review the Franchise Agreement for any terms that give the franchisor an easy right to sell the system again.
Non-Disclosure of Parent Company
Low Risk
Explanation
This specific risk was not identified in the FDD package. The franchisor properly discloses its parent company, SZ PEP Holdco, LLC, in Item 1. In general, it is a risk if a franchisor is a thinly capitalized subsidiary of a larger parent company, and the parent's financial information is not provided. This can obscure the true financial health and backing of the franchise system. In this case, the disclosures appear to be adequate.
Potential Mitigations
- Your franchise attorney can help you understand the corporate structure and the relationship between the franchisor and its parent.
- If a parent company guarantees the franchisor's obligations, your accountant should review the parent's financial statements if provided.
- Always ask your attorney to verify that all required financial disclosures, including those of any parent guarantor, have been made.
Predecessor History Issues
Medium Risk
Explanation
The FDD discloses that the franchisor's predecessor, Stretch Zone Holdings LLC, was involved in a significant lawsuit with one of its founders. The suit included allegations of fraud and improper conduct by the other owners, culminating in a $5.25 million buyout of the founder's interest. While this dispute involved the predecessor and has been settled, a history of serious internal conflict among founders can be a concern for the stability and culture of the brand you are joining.
Potential Mitigations
- Your franchise attorney should review the details of the litigation disclosed in Item 3 to fully understand the nature of the dispute.
- Discussing the company culture and any lingering effects from this dispute with long-term franchisees could provide valuable insight.
- A business advisor can help you assess whether the current management team, under new ownership, is detached from this past conflict.
Pattern of Litigation
Low Risk
Explanation
This specific risk was not identified in the FDD package. Item 3 discloses one significant lawsuit involving the predecessor entity but does not show a pattern of recent litigation against the current franchisor initiated by franchisees for fraud or other similar claims. A pattern of such lawsuits can be a major red flag, indicating potential systemic issues with the franchisor's business practices or franchisee relations. This does not appear to be the case here.
Potential Mitigations
- It's good practice for your attorney to conduct an independent search for any recent litigation not yet required to be disclosed in the FDD.
- Asking current and former franchisees about their relationship with the franchisor can help identify any widespread dissatisfaction.
- Your attorney should always carefully review Item 3 for any disclosed litigation and explain its potential implications.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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