Explanation

The FDD does not indicate excessively rapid growth; in fact, Item 20 data shows the system has been contracting over the past three years. Therefore, the specific risks associated with a franchisor outgrowing its support capabilities do not appear to be present. However, system decline presents its own set of challenges, such as decreasing brand value and potential for reduced support.

Potential Mitigations

• Inquire with the franchisor about their strategy for stabilizing and growing the system; a business advisor can help evaluate their plans.
• Your accountant should review the franchisor's financials to ensure they have the resources to support the existing system despite its contraction.
• Discuss the current level and quality of support with existing franchisees to gauge if it has been affected by the system's size.

Explanation

This risk was not identified. FCI has been franchising since 2007, and its key executives have been with the company for a similarly long period, indicating a mature system with an experienced management team. The risks associated with an unproven business model or inexperienced leadership do not appear to apply here. However, the system is currently shrinking, which is a separate concern.

Potential Mitigations

• A business advisor can help you investigate the franchisor's history and the track record of its management team.
• Even with an established system, it is wise to have your accountant review the company's long-term financial performance.
• Your attorney can help you understand the full history of the franchise by reviewing all disclosures in Item 1.

Explanation

This risk was not identified in the FDD package. The business model, custom picture framing, has been a part of the retail landscape for many decades and relies on sustained consumer demand for decorating homes and preserving memories. It does not appear to be based on a short-term trend or fad. The primary risk is market competition, not the transient nature of the business concept itself.

Potential Mitigations

• Engage a business advisor to research the long-term stability and market trends for the custom framing industry in your local area.
• Develop a business plan with your accountant that accounts for cycles in consumer discretionary spending.
• Your attorney can review the franchisor's obligations to keep the system modern and competitive over the long term.

Explanation

This risk was not identified. Item 2 shows that the key executives of FCI have extensive and long-term experience with the company, with most serving in their roles since 2007. This suggests a stable management team with deep knowledge of the franchise system and the industry, rather than inexperienced leadership. One director is also a multi-unit franchisee, indicating direct operational experience.

Potential Mitigations

• Even with an experienced team, it's wise to have your business advisor help you research the professional backgrounds of the key executives listed in Item 2.
• Discuss the management team's vision and responsiveness with current franchisees.
• Your attorney can confirm that the disclosed experience aligns with the support obligations outlined in the Franchise Agreement.

Explanation

This risk was not identified. Item 1 and the accompanying financial statements in Exhibit C do not indicate that the franchisor is owned or controlled by a private equity firm. The corporate structure appears to be held by other corporate entities (Conceptual Franchises, LLC and CFran Holdings, LLC), but not in a typical private equity model focused on short-term returns. The management team also shows long-term stability.

Potential Mitigations

• Your attorney can help you investigate the ownership structure detailed in Item 1 to understand who ultimately controls the franchise system.
• Ask the franchisor directly about their long-term vision for the company, which a business advisor can help you evaluate.
• Reviewing the franchisor's right to sell or assign the franchise agreement is a prudent step for your attorney to take.

Explanation

This risk was not identified. The FDD's Item 1 properly discloses the parent companies, Conceptual Franchises, LLC and CFran Holdings, LLC. Audited, consolidated financial statements for Franchise Concepts, Inc. and its subsidiaries are provided in Item 21. There is no indication that required financial information for a controlling parent company has been withheld.

Potential Mitigations

• Have your franchise attorney review Item 1 and Item 21 to ensure all required parent and affiliate disclosures have been properly made.
• Your accountant should verify that the provided financial statements are audited and comply with GAAP.
• If a parent company guarantees the franchisor's obligations, your attorney should ensure a copy of that guarantee is included and reviewed.

Explanation

This risk was not identified. Item 1 of the FDD states there are no other predecessors that need to be disclosed. The document presents a clear history of the current franchising entity, FCI, since 2007. Therefore, risks associated with a hidden or problematic history from a predecessor entity do not appear to be present based on the disclosure.

Potential Mitigations

• Your attorney should review Item 1 to confirm the statements about the franchisor's history and lack of predecessors.
• A business advisor can help you conduct independent research on the company's history to verify the FDD's claims.
• Asking long-tenured franchisees about the history of the system can provide valuable context.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation information is required to be disclosed in this Item." This indicates there is no recent or pending litigation against the franchisor involving claims of fraud, misrepresentation, or franchise law violations. This lack of litigation is a positive indicator regarding the franchisor's relationship with its franchisees.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor as part of due diligence.
• Ask current and former franchisees about their experiences and whether they have had significant disputes with the franchisor.
• A business advisor can help you assess the overall health of the franchisor-franchisee relationship within the system.