Explanation

This risk was not identified. Item 20 data for the past three years shows a small but growing system with no reported franchisee terminations, non-renewals, or cessations of operation. While positive, high franchisee turnover is a critical red flag in other systems as it can signal franchisee dissatisfaction, lack of profitability, or poor franchisor support.

Potential Mitigations

• It is still prudent to ask current franchisees about their satisfaction and profitability with the help of your business advisor.
• Your accountant can help you model different financial scenarios to understand the business's sensitivity to market changes.
• Legal counsel should review termination and renewal clauses to understand your rights and obligations fully.

Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates slow and controlled growth, expanding from two to five franchised outlets over a three-year period. This pace does not suggest that the franchisor's support systems are being strained. Rapid growth in other systems can sometimes stretch a franchisor's resources thin.

Potential Mitigations

• Discuss the franchisor’s strategic growth plans and how they intend to scale support infrastructure with your business advisor.
• Your accountant should still review the franchisor's financials to confirm they have adequate capital for planned growth.
• Inquire with your attorney about any development rights or obligations you may have.

Explanation

This risk was not identified. The franchise offers gasket replacement and related repair services for commercial refrigeration units, targeting businesses like restaurants, hotels, and hospitals. This appears to be a needs-based B2B service driven by equipment wear and health code requirements, rather than a fleeting consumer trend, suggesting more stable, long-term market demand.

Potential Mitigations

• A business advisor can help you conduct independent market research to verify the long-term demand for these services in your local area.
• Your accountant can help you analyze the potential for recurring revenue streams from maintenance and replacement cycles.
• Legal counsel should still review the contract terms to ensure you are not locked into a business model that cannot adapt to market changes.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, EverSmith, and its ultimate controller. Furthermore, the FDD includes the parent's audited financial statements in Exhibit B-1 and a Guaranty of Performance from the parent in Exhibit B-2, providing financial transparency and a backstop for the franchisor's obligations.

Potential Mitigations

• Have your accountant review the parent company's financial statements to understand its overall financial health.
• Your attorney should analyze the specific terms of the Guaranty of Performance to confirm its strength and enforceability.
• A business advisor can help you understand the relationship between the parent and the franchisor entity.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessor entities from which The Seals acquired its assets or that previously offered franchises for this system. This suggests the brand's history is contained within the current franchisor entity. In other cases, a complex predecessor history could obscure past failures or litigation.

Potential Mitigations

• In any franchise review, it's wise to have your attorney confirm the corporate history disclosed in Item 1.
• A business advisor can help you research the background of the brand and its founders for a more complete picture.
• An accountant can analyze financial statements for any notes related to acquisitions or predecessor activities.

Explanation

This risk was not identified in the FDD package. Item 3 states there is no litigation required to be disclosed against the franchisor or its management. The absence of a pattern of lawsuits, especially those alleging fraud or breach of contract, is a positive indicator. In other situations, a history of such litigation can signal systemic problems within a franchise.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the specific disclosure thresholds for Item 3.
• It is still advisable to ask current and former franchisees about any disputes they may have had with the franchisor.
• A business advisor can help you assess the overall health of franchisee-franchisor relations.