Explanation

This risk was not identified in the FDD Package. The data in Item 20 indicates the system has recently been shrinking, not growing rapidly. A franchisor expanding too quickly can sometimes strain support systems, negatively affecting franchisees. While that specific risk is not present here, the opposite trend of system shrinkage carries its own set of concerns regarding brand health and market perception.

Potential Mitigations

• Your business advisor can help you assess the potential impacts of a shrinking system on brand value and market presence.
• Discussing the reasons for system shrinkage with current and former franchisees can provide valuable insight.
• An accountant can analyze Item 20 data to project future trends and model various growth or shrinkage scenarios.

Explanation

SureStay, Inc. was formed in August 2016. While not a brand-new startup, it has a more limited operating history than many established hotel brands. This could imply evolving systems or strategies. However, the risk is significantly mitigated by the fact that the franchisor is a subsidiary of Best Western International, Inc., a large, long-standing operator in the hotel industry, which provides substantial backing and experience to the system.

Potential Mitigations

• Your business advisor should help you evaluate the benefits and drawbacks of joining a younger system, even one with strong parent backing.
• It is important to discuss the level of support and system maturity with current franchisees.
• An accountant can review the parent company's financials to confirm the stability of the support structure.

Explanation

This risk was not identified in the FDD Package. The franchise is for the operation of an economy or midscale hotel, which is a well-established and long-standing business sector. This type of business is not typically considered a fad and relies on consistent demand from travelers, rather than on a short-term trend.

Potential Mitigations

• A business advisor can help you analyze the long-term economic outlook for the specific segment of the hotel industry you will enter.
• Engaging a real estate professional to perform a local market study can confirm sustained demand in your proposed area.
• Your accountant can assist in modeling financial performance based on stable, long-term industry data rather than temporary trends.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses that the management team of SureStay is primarily composed of senior executives from its parent company, Best Western International, Inc. These individuals have extensive, long-term experience in the hotel and franchising industries, which mitigates concerns about inexperienced leadership.

Potential Mitigations

• It is still prudent to review the backgrounds of the key executives listed in Item 2 with your business advisor.
• Asking current franchisees about their perception of the management team's competence and support is a valuable due diligence step.
• Your attorney can help you understand the roles and responsibilities of the officers as described in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that the ultimate parent company, Best Western International, Inc., is an Arizona nonprofit corporation structured as a membership association. There is no disclosure of ownership by a private equity firm, which can sometimes bring a focus on short-term returns over the long-term health of the brand.

Potential Mitigations

• Your attorney can help verify the corporate structure and ownership details disclosed in Item 1 of the FDD.
• Discussing the franchisor's long-term strategic goals with them can provide insight into their operational philosophy.
• A business advisor can help you research the history and structure of Best Western International, Inc. for additional context.

Explanation

This risk was not identified in the FDD Package. The franchisor's parent company, Best Western International, Inc., is clearly disclosed in Item 1. Furthermore, the audited financial statements for the parent company and its unconditional guaranty of performance are provided as Exhibit E, which is the proper procedure when a franchisor relies on its parent's financials.

Potential Mitigations

• Your accountant should carefully review the provided parent company financial statements and the terms of the guaranty.
• It is still important for your attorney to confirm that the guaranty is legally sufficient and properly executed.
• Discuss the nature of the inter-company relationship with your business advisor to understand operational dependencies.

Explanation

This risk was not identified in the FDD Package. Item 1 explicitly states that SureStay, Inc. has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets, which can sometimes carry historical liabilities or reputational issues. The absence of a predecessor simplifies due diligence in this area.

Potential Mitigations

• Your attorney can help you verify the corporate history as disclosed in Item 1.
• Even without a formal predecessor, asking long-term franchisees about the system's history and evolution can be insightful.
• A business advisor can assist in researching the origin of the SureStay brand to confirm its history.