Explanation

This risk was not identified. The FDD's Item 20 data shows a system that is shrinking, not growing rapidly. When evaluating other franchises, rapid growth can strain a franchisor's ability to provide adequate support, training, and quality control. Your review should always balance growth rates with the franchisor's capacity to manage expansion effectively.

Potential Mitigations

• A business advisor can help you evaluate whether a franchisor's support infrastructure is keeping pace with its growth.
• When analyzing any franchise, it's wise to ask your accountant to review the franchisor's financials for signs of reinvestment into support systems.
• Your attorney can help you question existing franchisees about the quality of support during periods of system growth.

Explanation

This risk was not identified. Medicine Shoppe International, Inc. has been franchising since 1970 and has a long operating history. For other franchise opportunities, a new or unproven system can present higher risks, including an untested business model, undeveloped support systems, and minimal brand recognition. Always verify the depth of a franchisor's operational and franchising experience.

Potential Mitigations

• When evaluating a new franchise system, engaging a business advisor to assess the viability of the business model is crucial.
• Your accountant should carefully scrutinize the financial statements of any new franchisor for adequate capitalization.
• Consulting an attorney is important to understand the specific risks associated with an emerging franchise brand.

Explanation

This risk appears to be low. The retail pharmacy industry is a long-established and essential service, not typically subject to fad dynamics. However, the business is evolving due to mail-order services and new healthcare technologies. A risk in any industry is failing to adapt to market changes. Long-term success will depend on the ability to evolve with customer needs and healthcare trends.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for the specific services offered by the franchise.
• In any franchise, your attorney should review the franchisor's obligations to innovate and update the system.
• Continually evaluate how the business model might be affected by technological or societal shifts with your financial advisor.

Explanation

This risk was not identified. Item 2 indicates that the key executives at MSI and its parent, Cardinal Health, have extensive, long-term experience in the pharmaceutical distribution and franchise industries. When considering other opportunities, inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• With any franchise, having a business advisor help you vet the experience of the key management team is a valuable step.
• It is always prudent to ask your attorney to help you frame questions for existing franchisees about their confidence in the management team.
• Your accountant can provide insight by reviewing the financials of any franchise to see if they reflect a stable and well-managed company.

Explanation

This risk was not identified, as MSI is a subsidiary of Cardinal Health, Inc., a publicly-traded company, not a private equity firm. A prospective franchisee should be aware that when a franchisor is owned by a private equity firm, there may be a focus on short-term profitability or a quick sale of the system, which could potentially conflict with the long-term health of franchisees. This is an important factor to consider during due diligence.

Potential Mitigations

• Should you encounter a PE-owned franchisor, have your business advisor research the firm's history with other franchise brands.
• Your attorney should analyze the Franchise Agreement for any terms that facilitate an easy sale of the system without franchisee input.
• An accountant can help assess if a PE-owned franchisor's financial decisions prioritize franchisee support or investor returns.

Explanation

This risk was not identified. The FDD clearly discloses in Item 1 that Cardinal Health, Inc. is the parent company of MSI. Furthermore, Item 21 discloses that Cardinal Health guarantees MSI's obligations, and the parent company's audited financial statements are provided in Exhibit W. This transparency allows you to assess the financial strength of the entity backing the franchise.

Potential Mitigations

• In any FDD review, your attorney should verify that all parent companies and material affiliates are properly disclosed.
• It is wise for your accountant to confirm that any required parent financial statements are provided and meet accounting standards.
• A business advisor can help you understand the practical implications of a parent company's role in the franchise system.

Explanation

This risk was not identified. Item 1 states that MSI has no predecessors. In other franchise opportunities, a franchisor acquiring a system from a predecessor could inherit unresolved issues. A lack of transparent disclosure about a predecessor's history, including any past litigation or high franchisee failure rates, would be a significant concern during due diligence.

Potential Mitigations

• If a franchisor has predecessors, your attorney should carefully scrutinize Items 1, 3, and 4 for any negative history.
• It is a good practice to ask a business advisor to help you research the track record of any predecessor companies.
• When predecessors exist, asking long-term franchisees about their experience under previous ownership can provide valuable insight.