Explanation

The audited financial statements for TES Franchising, LLC (TES) indicate the company is profitable, with positive net income and member's equity for the years 2022, 2023, and 2024. Current assets sufficiently cover current liabilities, suggesting financial stability and the ability to support franchisees. While a portion of assets are receivables from related parties, the overall financial health appears sound. This specific risk was not identified as a major concern.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including all footnotes and the auditor's report, to confirm financial health.
• Discuss the franchisor's financial strategy and allocation of resources for franchisee support with your financial advisor.
• It is wise to ask your accountant to analyze the franchisor's reliance on franchise fees versus ongoing royalties for its revenue streams.

Explanation

This risk was not identified. TES Franchising, LLC has been in operation and franchising since 1997, indicating it is a mature and established system with a long operational history. The FDD provides multiple years of audited financial statements and data on a substantial number of franchisees, which is not characteristic of a new or unproven system. The primary risk here is not a lack of proof, but rather understanding the performance within this established system.

Potential Mitigations

• Even with an established system, consulting a business advisor to understand its current market position and competitive landscape is a prudent step.
• A conversation with your attorney about the legal history of the franchisor, as detailed in Item 3, can provide insight into its long operational track record.
• Have your accountant review the historical financial data to assess long-term trends in the franchisor's performance.

Explanation

This specific risk was not identified. The business model, providing coaching and placement services for prospective franchisees, has been operating since 1997. This long history suggests a sustained demand for such services rather than a dependency on a short-term trend. The business addresses a continuous market need for guidance in career transitions and business ownership, which is not typically characteristic of a fad business.

Potential Mitigations

• It is always wise to have a business advisor help you conduct independent research on the long-term trends and competitive landscape of the franchise consulting industry.
• Discuss the franchisor's strategies for innovation and adaptation to market changes with your financial advisor.
• Review the franchisor's history of adapting its services over the past two decades with current, long-term franchisees.

Explanation

This risk was not identified. The executive team detailed in Item 2 appears to have significant and long-term experience within both the franchising industry and with TES specifically. Several key members have been with the company for over a decade. While the CFO is a consultant, the overall management structure seems stable and deeply experienced, suggesting they have the knowledge to manage and support the franchise system effectively.

Potential Mitigations

• It would be prudent to discuss the management team's reputation and effectiveness with current and former franchisees.
• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• During your validation calls, ask franchisees about the quality of support provided by the corporate team.

Explanation

This specific risk was not identified. Item 1 states that TES Franchising, LLC does not have any parent companies. The franchisor appears to be privately owned by its managing member, who has been with the company since its inception. Therefore, the risks associated with a private equity firm's short-term profit motives and potential sale of the company are not present based on the FDD's disclosures.

Potential Mitigations

• Your attorney should confirm the ownership structure disclosed in Item 1 and explain the implications of the current ownership.
• It is still valuable to ask your attorney to review the assignment clause in the Franchise Agreement to understand what happens if the business is sold in the future.
• A business advisor can help you understand the pros and cons of investing in a founder-led company versus one with corporate ownership.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose any parent company for TES Franchising, LLC. The franchisor provides its own audited financial statements in Item 21, as required. There is no indication of a thinly capitalized subsidiary relying on an undisclosed parent for financial backing. The affiliated companies mentioned are also described clearly.

Potential Mitigations

• Your attorney should verify the corporate structure described in Item 1 to ensure there are no undisclosed parent or holding companies.
• It is wise for your accountant to review the provided financials to confirm the franchisor's standalone viability.
• Asking the franchisor directly about their corporate structure and any plans for changes can provide additional clarity.

Explanation

This risk does not appear to be present. Item 1 of the FDD clearly states, "We do not have any parent companies or predecessors." This indicates the current entity, TES Franchising, LLC, is the original franchisor and has not acquired the system from a prior entity. Therefore, there is no predecessor history to obscure or analyze for hidden risks.

Potential Mitigations

• Your attorney should confirm the statements in Item 1 regarding the lack of predecessors.
• Even without predecessors, it's valuable to have a business advisor help you review the franchisor's entire 25+ year history.
• In discussions with long-term franchisees, you can ask about the company's history and evolution to verify the information.