Explanation

This risk was not identified in the FDD package. Item 20 tables show that as of the FDD issuance date, there are no operating franchisees, and therefore no history of franchisee turnover, terminations, or non-renewals. While this means no negative trend exists, it also means there is no track record of franchisee success or satisfaction to evaluate.

Potential Mitigations

• It's advisable to have your business advisor help you assess the franchisor’s company-owned store performance as a proxy for the business model's potential.
• Discuss with your franchise attorney the implications of being one of the first franchisees in a new system.
• Your accountant can help you create financial projections with conservative assumptions, given the lack of franchisee performance data.

Explanation

This risk was not identified. The franchise system is new, with zero franchisees, so there is no rapid franchise growth to analyze. The growth in company-owned outlets, as shown in Item 20, has been steady and moderate rather than explosive. This suggests the parent organization has not historically overextended its support infrastructure for its own stores.

Potential Mitigations

• Discuss the franchisor's planned growth trajectory and the scalability of its support systems with a business advisor.
• An accountant can review the franchisor's financials to assess whether they are capitalized for future growth.
• Your attorney can help you understand the support obligations the franchisor is contractually required to provide as the system grows.

Explanation

This risk was not identified. The franchise is for Tempur-Pedic retail stores, a well-known, premium mattress brand with a long history of consumer demand. The business is part of the established bedding and home goods industry and does not appear to be based on a short-term trend or fad, which reduces the risk of a sudden decline in market relevance.

Potential Mitigations

• Engage a business advisor to research the long-term outlook for the premium mattress and bedding market.
• Even for established brands, it is wise for an accountant to help you assess the business model's resilience to economic downturns.
• Your attorney can help you understand any contractual obligations that would persist even if market trends were to change.

Explanation

This risk was not identified. Item 2 shows that the executive team is composed of individuals with extensive corporate experience at Tempur Sealy International and other large companies like Berkshire Hathaway Automotive. While their experience may be more in corporate retail than in franchise support specifically, they do not appear to be inexperienced in managing a large-scale retail operation. This provides a degree of management stability.

Potential Mitigations

• Inquire about the management team’s specific experience in supporting a franchise network with a business advisor.
• Your attorney can help you understand the contractual support obligations regardless of management's specific background.
• An accountant can help assess if the company's financial planning reflects a solid understanding of the business.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is part of a corporate structure under Somnigroup International Inc., which appears to be the publicly-traded Tempur Sealy International. The ownership structure is corporate rather than by a private equity firm, which can sometimes prioritize short-term returns over the long-term health of the system.

Potential Mitigations

• It is always prudent for your attorney to verify the complete ownership structure of the franchisor and its parent companies.
• A business advisor can help research the parent company's history and its typical approach to managing subsidiary brands.
• Your accountant can review the parent company's public financial filings for a broader understanding of the overall corporate health.

Explanation

This risk was not identified. Item 1 clearly outlines the corporate structure, identifying Tempur Franchising US, LLC, its parent Tempur World, LLC, and the ultimate parent Somnigroup International Inc. The FDD appears to be transparent about the hierarchy and the entities involved in the franchise system, reducing the risk of a hidden, unstable parent company.

Potential Mitigations

• An attorney should always confirm the legal standing and relationship of all entities mentioned in Item 1.
• Your accountant can help assess the financial interplay between the franchisor and its parent entities as disclosed.
• It is useful to ask a business advisor to help you understand the operational roles of each parent and affiliate company.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has not had any predecessors in the last ten years. This simplifies the due diligence process, as there is no need to investigate the historical performance, litigation, or bankruptcy history of a prior entity that operated the system.

Potential Mitigations

• Your attorney can perform a public records search to confirm the information about the franchisor's corporate history.
• A discussion with a business advisor can help you understand the implications of a company starting a new franchise system from scratch.
• Your accountant can analyze the franchisor's financials to see if they reflect a new enterprise as stated.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation information is required to be disclosed in this item." This indicates the franchisor, its parent, and its management have not been involved in the type of material litigation that requires disclosure, which is a positive sign regarding the system's legal history.

Potential Mitigations

• Your attorney can conduct an independent search of public court records to verify the absence of significant litigation.
• It is still advisable to ask the franchisor directly about any past or pending disputes, even if not legally material.
• A business advisor can help you research the company's general reputation in the industry.