Explanation

This specific risk was not identified in the FDD package. Fitness concepts can sometimes be tied to trends, but whether this specific model represents a sustainable business or a short-term fad is difficult to determine from the documents alone. A franchisee should be aware that if consumer preferences shift away from this style of workout, the business could be harmed, while your long-term contractual obligations to the franchisor would remain.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for this specific fitness concept.
• You should evaluate the franchisor's plans for innovation and adaptation to stay relevant in the competitive fitness market.
• Consider the business model's resilience to economic shifts and changing fitness trends with your financial advisor.

Explanation

This risk was not identified in the FDD package, as the executives listed in Item 2 appear to have several years of direct experience in the fitness industry and with the parent company that created the concept. However, it is important for any prospective franchisee to assess whether management's experience extends specifically to supporting a franchise network, which is different from simply operating company-owned locations. Inexperience in franchising can lead to challenges in providing adequate franchisee support.

Potential Mitigations

• It is prudent to discuss the management team's specific franchising experience with your business advisor.
• Asking existing franchisees about the quality of support and management's understanding of their needs can provide valuable insight.
• Your attorney can help you understand the support obligations the franchisor has committed to in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. The franchisor does not appear to be owned by a private equity firm. Franchisees should generally be aware that when a franchisor is owned by a private equity firm, there may be a focus on short-term profitability and a quick exit strategy, which could potentially lead to decisions that do not align with the long-term health of franchisees' businesses.

Potential Mitigations

• In any franchise review, it is wise to have your attorney investigate the ownership structure of the franchisor.
• If private equity ownership is a factor, consulting a business advisor to research the firm's track record with other brands is recommended.
• Understanding the assignment clause in the Franchise Agreement with your attorney is crucial, as it governs the sale of the system.

Explanation

This risk was not identified in the FDD package. Item 1 clearly identifies the parent company, Brickhouse Athletics, LLC, and audited financials for the franchisor entity are provided. There is no indication that the parent company's financial statements are required but have been omitted. A transparent ownership structure is a positive factor, as it allows for a more complete assessment of the entities influencing the franchise system.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all relevant parent and affiliate entities are identified.
• An accountant should confirm if parent company financials are required by rule, especially if the parent guarantees obligations or is a sole supplier.
• A business advisor can help you understand the relationships and dependencies between the franchisor, parent, and any affiliates.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a predecessor, Brickhouse Athletics, LLC, which appears to be the entity through which the founders developed the concept. The FDD does not indicate any negative history such as bankruptcy or significant litigation associated with the predecessor. A clean and transparent predecessor history is a positive sign for a prospective franchisee.

Potential Mitigations

• Having your attorney review the predecessor disclosures in Items 1, 3, and 4 is a standard part of due diligence.
• A business advisor can assist with independent research on a predecessor's history if there are any concerns.
• You should ask long-term franchisees about their experience under any predecessor entities.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. This is a positive indicator, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a significant red flag about the health of a franchise system and the franchisor's practices. The absence of such disclosed litigation suggests a less contentious relationship with franchisees.

Potential Mitigations

• Your attorney should always review Item 3 carefully for any disclosed litigation.
• It is wise to ask existing franchisees if they are aware of any disputes, even if they haven't resulted in litigation disclosed in the FDD.
• A business advisor can help you conduct independent online searches for news or reports of disputes involving the franchisor.