Explanation

The risk of a franchisor's support systems being strained by excessively rapid growth was not identified. In fact, Item 20 data indicates the system has been stagnant or shrinking in recent years. While this avoids the risks of rapid expansion, it introduces a different concern about the system's overall health and appeal, which may suggest challenges with franchisee success or lead to a lack of innovation and support.

Potential Mitigations

• It would be prudent to discuss the reasons for the recent lack of growth with the franchisor and existing franchisees, with guidance from your business advisor.
• Your accountant can help analyze the financial data in Item 21 to determine if the stagnation is related to the franchisor's financial health.
• Your attorney can review whether the franchisor's contractual support obligations are robust enough, even in a no-growth environment.

Explanation

This risk was not identified. The business model, which involves providing B2B logistics, packaging, and freight forwarding services, operates within established and essential commercial sectors. This type of business is not based on a short-term trend or fad, which generally reduces the risk of a sudden decline in market demand due to shifting consumer tastes. Success will likely depend more on execution and market conditions than on the fleeting popularity of the concept itself.

Potential Mitigations

• Engage a business advisor to assess the long-term demand for these B2B services within your specific local market.
• Your accountant can help you analyze the stability of the industries you would be servicing to project future revenue streams.
• An attorney should review the franchise agreement to ensure you have the flexibility to adapt your service offerings over the long term.

Explanation

This specific risk was not identified. The FDD's Item 2 discloses that the key managers, Matthew and Adam Cahill, have extensive experience in the logistics and packaging industry since 2002 and have been involved with the franchise system since its inception in 2017. This background suggests they possess relevant operational and industry-specific knowledge. However, the overall performance of the franchise system should still be a key focus of your due diligence.

Potential Mitigations

• A business advisor can help you assess how the disclosed management experience translates into effective franchisee support and system strategy.
• It's still valuable to ask current franchisees about their direct experiences with the management team's support and guidance.
• An attorney should confirm that the franchisor's support obligations are clearly defined in the contract, regardless of management's experience.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is a subsidiary of SUPPLY POINTe Holdings, LLC and appears to be a family-owned and operated business. There is no disclosure of ownership by a private equity firm. This typically means decisions may be more focused on the long-term health of the brand rather than short-term investor return timelines, which can be a potential benefit for franchisees.

Potential Mitigations

• Your attorney should still review the assignment clauses in the franchise agreement to understand what happens if the system is sold in the future.
• A business advisor can help you research the ownership structure for any signs of outside investment that may not be immediately apparent.
• It is wise to ask the franchisor about their long-term plans for the ownership of the company.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the existence of a parent company, SUPPLY POINTe Holdings, LLC. Because the franchisor is not a startup and provides its own audited financial statements, and there is no mention of a parent company guarantee of performance, the parent's financial statements are not required for disclosure under the FTC Rule. Therefore, the disclosure appears to be compliant in this regard.

Potential Mitigations

• Your attorney can confirm that the disclosures regarding the parent company and its relationship to the franchisor are compliant with regulations.
• An accountant should review the franchisor's own financials to assess its standalone viability, independent of the parent.
• A business advisor can help you understand the practical implications of the parent/subsidiary structure on your franchise.

Explanation

This risk does not apply. Item 1 of the FDD clearly states, "We do not have any predecessors." This means the current franchisor entity is the only one that has operated this franchise system, and you do not need to be concerned about inheriting historical issues, litigation, or a negative reputation from a prior owner of the system. Your due diligence can focus solely on the track record of the current franchisor.

Potential Mitigations

• It's good practice for your attorney to verify the corporate history to confirm the absence of predecessors.
• A business advisor can help you focus your due diligence efforts on the current franchisor's performance and history since its 2016 formation.
• You should still ask early franchisees about the history of the company, as they may have relevant insights.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." The absence of a pattern of lawsuits filed by or against franchisees, especially concerning claims of fraud or misrepresentation, is a positive indicator. It suggests a lower likelihood of systemic issues that frequently lead to legal disputes within the franchise system. However, this does not guarantee future disputes will not arise.

Potential Mitigations

• Your attorney can perform independent public records searches to verify that no undisclosed material litigation exists.
• Asking current and former franchisees about any disputes they've had, even if they didn't result in litigation, can provide valuable insight.
• A thorough review of the dispute resolution clauses in the franchise agreement with your attorney is still crucial.