Explanation

This risk was not identified in the FDD package. The business model, which provides 'last mile' delivery services for e-commerce, is tied to a fundamental and growing sector of the economy rather than a short-term trend or fad. The long-term demand for such services appears sustainable, although the competitive landscape is a separate consideration.

Potential Mitigations

• A business advisor can help you independently research the long-term market trends and competitive landscape for last-mile delivery services.
• Discussing the franchisor's plans for innovation and adaptation to stay competitive should be a key part of your due diligence.
• Your financial advisor can assist in evaluating the business model's resilience to economic shifts and changes in consumer behavior.

Explanation

This risk was not identified in the FDD package. Item 2 of the FDD indicates that the key executives have prior relevant experience in logistics, business development, and in some cases, prior franchising experience with other systems. This suggests the management team possesses a foundational understanding of the industry and the franchise business model.

Potential Mitigations

• A business advisor can still help you conduct independent research on the backgrounds and track records of the key management personnel.
• Asking existing franchisees about their direct experiences with the management team's competence and support is a valuable step.
• Your attorney can help you frame questions to the franchisor about how management's past experience is being applied to support current franchisees.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a wholly-owned subsidiary of The FRONTdoor Collective, Inc., which appears to be the founding corporate entity rather than a private equity firm. The typical risks associated with PE ownership, such as a focus on short-term returns over system health, do not appear to be present based on the provided disclosures.

Potential Mitigations

• A business advisor can help you research the ownership structure of the parent company to confirm its nature.
• It is still prudent to ask the franchisor about their long-term vision for the brand and any potential plans for a future sale of the system.
• Your attorney should review the Franchise Agreement for any clauses related to the sale or assignment of the franchise system.

Explanation

This risk was not identified in the FDD package. FDFC discloses its parent company in Item 1. While the parent company's financials are not provided, which is a concern given the franchisor's financial state, the existence of the parent is not hidden. The risk stems from the franchisor's financial instability and dependency on the parent, which is covered under a separate risk.

Potential Mitigations

• Your accountant should analyze the note payable to the parent company disclosed in the franchisor's financial statements.
• It is advisable to ask the franchisor for the parent company's financial statements to better assess the overall financial health of the enterprise.
• Your attorney can explain the legal relationship and obligations between the parent and the franchisor subsidiary.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that the franchisor does not have any predecessors. Therefore, risks associated with an undisclosed or problematic history from a prior entity that owned the system are not applicable here.

Potential Mitigations

• A business advisor can help you verify the corporate history through public records to confirm the absence of predecessors.
• Asking early franchisees about the origins of the system can provide additional context.
• Your attorney can confirm that the representations in Item 1 regarding predecessors are clear and unambiguous.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD, and its state-specific addenda, state that there is no material litigation to disclose involving the franchisor, its predecessors, or its management. The absence of a pattern of litigation against the franchisor is a positive indicator, though it does not eliminate other risks.

Potential Mitigations

• Your attorney can conduct independent public record searches for litigation as part of a comprehensive due diligence process.
• Asking current and former franchisees about any past or pending legal disputes is a wise step.
• A discussion with a business advisor can help you understand what level of litigation is typical for a franchise system of this size and age.