Explanation

This risk was not identified. A review of the audited financial statements for The Joint Corp. (The Joint) in Exhibit G indicates it is a profitable, publicly-traded company with significant revenues and a positive net worth. Financial instability does not appear to be a current risk. It is important to assess a franchisor's financial health to ensure they can support the system long-term.

Potential Mitigations

• A franchise accountant should thoroughly review the franchisor's financial statements, including all footnotes and comparative data, for any signs of financial weakness.
• Analyzing revenue sources with your accountant can reveal if the franchisor is dependent on franchise fees versus ongoing royalties.
• It is prudent to have your attorney verify if any state-required financial assurances, like bonds or escrow, are in place if financials are weak.

Explanation

This risk was not identified. An analysis of the franchisee turnover data presented in Item 20 tables does not suggest a high rate of unit closures, terminations, or non-renewals relative to the system's size over the past three years. Low turnover can indicate a stable system. However, you should still investigate the reasons for any exits that did occur.

Potential Mitigations

• Your business advisor should assist you in contacting former franchisees listed in Item 20 to understand their reasons for leaving the system.
• An accountant can help you analyze the Item 20 tables to calculate the precise turnover rates for the last three years.
• Seeking legal counsel to help frame questions for former franchisees can yield more insightful information about their experiences.

Explanation

This risk was not identified. The data in Item 20 shows a system that is large and has been growing steadily, but not at a rate that appears to outpace its resources as a large, publicly-traded company. Uncontrolled growth can strain a franchisor's ability to provide adequate support. You should still verify the quality of support with existing franchisees.

Potential Mitigations

• It is wise to ask the franchisor about their infrastructure and plans for scaling support to match continued growth.
• A broad discussion with both new and established franchisees can provide insight into the current quality and responsiveness of franchisor support.
• A review of the franchisor’s financial capacity to support its system size with your accountant can be a valuable exercise.

Explanation

This risk was not identified. The Joint has been franchising since 2010 and, as of the end of 2024, has over 800 franchised locations and over 100 company-owned locations. The system is well-established and supported by an experienced management team, as detailed in Item 2. An unproven system can present higher risks due to undeveloped support and brand recognition.

Potential Mitigations

• Verifying the franchisor's history and the experience of its key leadership team with your business advisor is a key due diligence step.
• Speaking with some of the earliest-listed franchisees in Item 20 can provide a long-term perspective on the system's evolution.
• An accountant can help you assess if the franchisor's financial stability aligns with its status as a mature system.

Explanation

This risk was not identified. The business model, which provides chiropractic services, caters to a long-standing consumer need for wellness and pain management rather than a temporary trend. The membership model is a common and sustainable approach in service industries. A business based on a fad can face declining consumer interest, posing a significant risk to your long-term investment.

Potential Mitigations

• A business advisor can help you independently assess the long-term market demand for the core services offered by the franchise.
• Evaluating the franchisor's plans for innovation and service development is important for understanding their long-term vision.
• Consider the business model's resilience to economic shifts with your financial advisor.

Explanation

This risk was not identified. The executive biographies in Item 2 indicate that the management team of The Joint has extensive experience in the franchise and related service industries. Inexperienced leadership can pose a risk to a franchise system through potential errors in strategy and support. It is still valuable to assess leadership through franchisee interviews.

Potential Mitigations

• A business advisor can help you vet the backgrounds of key executives to confirm their experience is relevant to your needs as a franchisee.
• Inquiring with existing franchisees about their confidence in the current leadership team is a crucial due diligence step.
• Your attorney can help you understand how management's decisions translate into contractual obligations and support.

Explanation

This risk was not identified in the FDD. The Joint Corp. is a publicly-traded company, not one owned by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term investment horizons, which may lead to decisions prioritizing quick returns over the long-term health of the franchise system and its franchisees.

Potential Mitigations

• It is always prudent for your attorney to review Item 1 for details on the franchisor’s ownership structure.
• If a franchisor is owned by a private equity firm, researching the firm's history with other franchise brands can provide valuable context.
• Speaking with franchisees who have been in a system both before and after a private equity acquisition can offer critical insights.

Explanation

This risk was not identified. The FDD for The Joint Corp. does not mention a parent company. It operates as a standalone, publicly-traded entity, and its financial statements are provided in Exhibit G. In some franchise systems, a parent company's financial health can be critical, and its non-disclosure may hide risks if the franchisor is a thinly-capitalized subsidiary.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to identify any parent companies.
• If a parent company exists and guarantees the franchisor's obligations, an accountant's review of its financials is critical.
• Understanding the legal and financial relationship between a franchisor and its parent is a key task for your legal and financial advisors.

Explanation

This risk was not identified. The FDD does not list any predecessors for The Joint Corp. The company's history detailed in Item 1 begins with its own incorporation in 2010. In systems with predecessors, it is important to review their history for any inherited issues, such as past litigation or bankruptcy, that could impact the current franchise system.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors or business acquisitions.
• If a predecessor is identified, a business advisor can help you research the predecessor's history and reputation.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable historical context.