Explanation

This risk was not identified. The audited financial statements in Exhibit F for fiscal years 2023 and 2024 show Superior Walls of America, Ltd. (SWA) to be profitable, with growing revenues and a healthy balance sheet. An independent auditor provided an unqualified opinion with no 'going concern' qualification. A franchisor’s financial health is critical as it indicates their ability to support you and grow the brand.

Potential Mitigations

• Engaging an experienced franchise accountant to thoroughly analyze the franchisor's financial statements, including all footnotes and year-over-year trends, is a critical step.
• A comprehensive review of the auditor's report with your accountant can reveal important details about the franchisor's financial condition.
• You should have your financial advisor assess whether the franchisor's cash flow and profitability appear sustainable.

Explanation

This risk was not identified. Item 20 data shows the system has been growing at a slow and steady pace, adding one net new outlet in each of the last two years. Rapid, uncontrolled growth can sometimes strain a franchisor's ability to provide adequate support to its franchisees. SWA's growth appears controlled and sustainable based on the provided data.

Potential Mitigations

• Even with stable growth, asking current franchisees about the quality and timeliness of franchisor support is a valuable due diligence step.
• Your business advisor can help you evaluate if the franchisor's support infrastructure is appropriate for its current size and future plans.
• An accountant's review of the financial statements can help confirm that the franchisor has the resources to support its network.

Explanation

This risk was not identified. Superior Walls of America, Ltd. (SWA) has a long operational history, having first been incorporated in 1985 and involved in franchising since the late 1990s. Item 19 notes that some licensees have been operating for over a decade. An unproven system can present higher risks due to undeveloped support and lack of brand recognition, which does not appear to be the case here.

Potential Mitigations

• A discussion with long-standing franchisees can provide insight into the system's evolution and stability over time.
• Your attorney can help you understand how the franchisor's long history might affect the terms of the current License Agreement.
• Reviewing the business experience of the management team in Item 2 with your business advisor can further confirm system stability.

Explanation

This risk was not identified. The business model, which involves manufacturing and installing precast concrete foundation walls, is a core component of the long-standing residential and commercial construction industry. This is not a trend-based or fad business, which can carry a higher risk of declining consumer interest over time. The company's long history further suggests a stable demand for its products.

Potential Mitigations

• Assessing the long-term demand for precast foundation systems in your specific geographic market with a business advisor is prudent.
• Your accountant can help you analyze the financial viability of this type of business, independent of its franchise structure.
• Reviewing the competition section in Item 1 can provide a better understanding of the market landscape.

Explanation

This risk was not identified. Item 2 details a management team with extensive and long-standing experience within both the company and the broader construction industry. For instance, the founder remains a director, and the trainers average 17 years of experience with SWA. Inexperienced leadership can pose a risk to a franchise system's stability and the quality of support provided, which does not appear to be a concern here.

Potential Mitigations

• When speaking with current franchisees, it is still wise to ask about their direct experiences with the management team's accessibility and support.
• Your business advisor can help you assess how the management team's specific skills align with the support you will need.
• A review of the litigation history in Item 3 with your attorney can sometimes provide insight into management's past conduct.

Explanation

This risk was not identified. Item 1 states that Superior Walls of America, Ltd. (SWA) does not have a parent company, indicating it is not owned by a private equity firm. Franchises owned by private equity can sometimes face pressures for short-term returns over the long-term health of the franchisee network. This does not appear to be a factor in this case.

Potential Mitigations

• A business advisor can help you research the ownership structure of the franchisor to confirm its independence.
• Your attorney should review Item 1 and the License Agreement for any clauses that might pertain to future changes in ownership control.
• Asking the franchisor about their long-term vision for the company can provide insight into their operational philosophy.

Explanation

This risk was not identified. Item 1 of the FDD clearly states that Superior Walls of America, Ltd. (SWA) does not have a parent company. When a franchisor is a subsidiary, the financial health and influence of the parent company can be material. In this case, the franchisor appears to be a stand-alone entity, so this specific risk is not applicable.

Potential Mitigations

• Your attorney should confirm the corporate structure as disclosed in Item 1.
• It is useful to have an accountant review the franchisor's financial statements to ensure it is sufficiently capitalized to operate independently.
• Your due diligence should still include asking current franchisees about the level of resources and support the franchisor provides.

Explanation

This risk was not identified. The FDD discloses a predecessor entity in Item 1 but reports no associated litigation or bankruptcy history in Items 3 and 4. A complete and transparent disclosure of a predecessor's history is important for understanding the full background of the franchise system. No negative issues related to the predecessor were found in this document.

Potential Mitigations

• Your attorney can help you verify the information about the predecessor and confirm there are no undisclosed liabilities.
• Speaking with long-tenured franchisees about their experience during any transition from a predecessor can provide valuable historical context.
• A business advisor can help research public records for information about the predecessor entity if further diligence is desired.