Explanation

This risk was not identified in the FDD package. Assessing whether a business concept is a sustainable trend or a short-lived fad is crucial for long-term investment. A business tied to a fleeting trend could face a sharp decline in customer demand, jeopardizing your investment even if you are locked into a long-term franchise agreement. The one-on-one assisted stretching industry has seen growth, but its long-term mass-market sustainability requires your own careful evaluation.

Potential Mitigations

• Engage a business advisor to conduct independent market research on the long-term consumer demand for assisted stretching services.
• Evaluate the franchisor's plans for innovation and adaptation to stay relevant in the competitive wellness and fitness market.
• It is prudent to assess the business model's resilience to economic shifts and changing consumer wellness habits with your financial advisor.

Explanation

This risk was not identified in the FDD package. The individuals on the management team appear to have prior experience in the fitness industry, business management, and franchising. However, it is important to independently evaluate if their specific expertise aligns with the support you will need. A management team lacking direct experience in franchising or the specific industry can pose a risk, as they may struggle to provide effective support, training, and strategic guidance.

Potential Mitigations

• Your business advisor can help you research the backgrounds of the key executives listed in Item 2 to verify their track record in franchising and the fitness industry.
• It is wise to ask current franchisees about their direct experiences with the management team's competence and support.
• Clarifying the specific roles and responsibilities of each executive with the franchisor can provide insight into the operational support structure.

Explanation

This risk was not identified in the FDD package, as StretchMed Franchise, LLC does not appear to be owned by a private equity firm. When a franchisor is owned by a private equity firm, there may be a focus on short-term returns, which could lead to decisions that are not in the long-term best interests of franchisees, such as cutting support services or forcing sales to affiliated vendors to maximize profits before selling the company.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise system to identify potential private equity involvement.
• When PE firms are involved, it is important for your attorney to review the assignment clause in the Franchise Agreement to understand the implications of a potential sale of the system.
• Speaking with franchisees who have experienced a sale of their franchise system can provide valuable insights, a task your business advisor can facilitate.

Explanation

This risk was not identified in the FDD package, as StretchMed Franchise, LLC does not appear to have a parent company. When a franchisor is a subsidiary, the parent company's financial health can be critical. If the parent is not disclosed, or if its required financial statements are withheld, it can hide financial instability or a lack of backing for the franchise system, presenting a significant risk to you as a prospective franchisee.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all parent and affiliate relationships are properly disclosed.
• If a parent company guarantee is mentioned, your accountant should confirm that the parent's financial statements are included and meet disclosure requirements.
• It is wise to have a business advisor assess the operational relationship between a franchisor and its parent to understand where key support originates.

Explanation

Item 3 discloses two administrative actions from 2023 in California and Washington related to registration filings, one involving an unlicensed CPA. While these are not franchisee-initiated lawsuits alleging fraud, they do show some early stumbles in regulatory compliance. This could suggest a lack of experience or attention to detail in managing the legal aspects of franchising, which could potentially affect you in the future. No pattern of franchisee litigation was identified.

Potential Mitigations

• Your attorney should review the consent order and administrative actions to understand the nature and severity of the compliance issues.
• A business advisor can help you ask the franchisor what steps they have taken to ensure proper regulatory compliance going forward.
• It is wise to have your attorney verify the franchisor's current registration status in your state.