Explanation

The FDD does not provide financial statements for the franchisor, SureStay, Inc. (SureStay). Instead, it provides audited financials for its parent company, Best Western International, Inc. (BWI), which absolutely and unconditionally guarantees SureStay's performance. BWI's financials appear strong, showing significant net assets and profitability. While direct financial insight into SureStay is unavailable, the parent guaranty is a substantial mitigating factor, suggesting a low risk of franchisor financial failure.

Potential Mitigations

• An experienced franchise accountant should review the parent company's financial statements and the terms of the guaranty to assess its strength.
• Understanding the full scope of the parent company's backing requires a detailed discussion with your attorney.
• Engaging a business advisor can help evaluate the operational risks of dealing with a subsidiary, even one with a strong parent guarantee.

Explanation

The data tables in Item 20 show this specific licensed system is new, with four outlets opened in 2024 and no terminations, non-renewals, or other cessations. Therefore, based on the provided tables, a high franchisee turnover risk is not identified. However, a footnote reveals that data for hotels operating under the prior franchise model (2016-2024) is excluded, which significantly limits the transparency of the brand's historical turnover. This is addressed in a separate Miscellaneous Risk.

Potential Mitigations

• It is critical to contact a significant number of current and former franchisees to understand the brand's true history; your attorney can help prepare questions.
• An accountant should analyze the available Item 20 data, while noting its limited scope and the potential for unrevealed historical turnover.
• Ask your business advisor to help assess the risks associated with the franchisor's lack of transparent, historical performance data.

Explanation

This specific risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support. The Item 20 tables for this new licensing model show growth from zero to only four outlets, which does not indicate the kind of rapid expansion that would typically raise this concern. Therefore, the risk of support infrastructure being outpaced by growth appears low based on the disclosed data for this specific program.

Potential Mitigations

• Your business advisor can help you monitor the system's growth rate and assess if support levels remain adequate over time.
• Continually networking with other franchisees will provide insight into whether the franchisor's support is keeping pace with any future growth.
• An accountant can help you review future FDDs to track the relationship between unit growth and the franchisor's financial investment in support services.

Explanation

This specific risk was not identified in the FDD package. The business model involves operating a hotel under an established brand name affiliated with Best Western International, Inc., a major player in the global hospitality industry for many decades. The hotel industry is mature and subject to economic cycles but is not considered a fad. The risk of the entire concept disappearing due to a short-lived trend appears to be very low.

Potential Mitigations

• A business advisor can help you assess the specific market position of the SureStay Collection brand within the broader, stable hotel industry.
• To understand competitive pressures, your marketing advisor can analyze local hotel market trends and demand drivers.
• An accountant can help you model financial performance based on typical hotel industry economic cycles rather than short-term trends.

Explanation

This risk was not identified in the FDD. The management team and directors listed in Item 2 are executives and board members of the parent company, Best Western International, Inc. These individuals have extensive, long-term experience in the hotel industry and in managing the broader Best Western system, which includes various franchise and membership models. The risk of inexperienced management appears to be low.

Potential Mitigations

• Your business advisor can help research the public track record and reputation of the key executives listed in Item 2.
• When speaking with existing franchisees, you can inquire about their perception of management's competence and strategic direction.
• An attorney can confirm the roles and responsibilities of the management team as they relate to their obligations to franchisees.

Explanation

This specific risk was not identified in the FDD package. Private equity ownership can introduce risks related to short-term profit motives. However, Item 1 and the financial statements in Exhibit D describe the parent company, Best Western International, Inc., as a nonprofit membership corporation. It is not owned or controlled by a private equity firm. Therefore, this specific risk is not present.

Potential Mitigations

• Your attorney can confirm the corporate structure and ownership of the franchisor and its parent company.
• A business advisor can help you understand the differences in motivations and potential risks between a non-profit membership structure and a PE-owned franchisor.
• During franchisee interviews, you can ask about their experience with the nonprofit ownership model and its impact on decision-making.

Explanation

This specific risk was not identified in the FDD package. When a franchisor is a subsidiary, the parent company's information is crucial. In this case, the FDD clearly discloses in Item 1 that Best Western International, Inc. is the parent. Furthermore, Item 21 explicitly states that BWI's audited financial statements are provided in Exhibit D, along with a Guaranty of Performance. The parent company and its financial backing are transparently disclosed.

Potential Mitigations

• An accountant should review the parent company's financial statements to assess the strength of its financial backing.
• Your attorney can analyze the Guaranty of Performance to ensure it provides a meaningful backstop for the franchisor's obligations.
• Engage a business advisor to discuss the operational relationship between the subsidiary franchisor and the parent company.

Explanation

This specific risk was not identified in the FDD package. FDD Item 1 requires the disclosure of any predecessors from which the franchisor acquired the business. SureStay, Inc. was formed in August 2016 and the FDD states, "We have no predecessors." Therefore, there are no predecessor-related risks to assess from historical financial or litigation issues.

Potential Mitigations

• Your attorney can verify the corporate history of the franchisor to confirm the absence of any undisclosed predecessors.
• A business advisor can help you understand the implications of investing in a system without a long corporate lineage to analyze.
• It remains important to research the history of the SureStay brand itself, even if the corporate entity has no predecessors.