Explanation

This risk was not identified as the FDD's Item 20, which contains franchisee turnover data, was not provided. Reviewing this data is critical, as high rates of terminations, non-renewals, or closures can signal systemic problems, such as franchisee unprofitability or dissatisfaction. A high number of transfers can also be a red flag, sometimes masking the sale of failing units. Careful analysis of this data is a key part of due diligence.

Potential Mitigations

• A franchise accountant should analyze the full Item 20 tables to calculate the actual turnover rate over the past three years.
• It is crucial to contact a significant number of former franchisees listed in the FDD to understand their reasons for leaving the system.
• Your attorney can help you formulate questions for the franchisor regarding the circumstances behind any high turnover numbers.

Explanation

This risk was not identified from the information available. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and quality control. While this does not appear to be an issue yet for Vital Stretch, it is a factor to monitor, especially with new systems. Unchecked growth can dilute brand value and leave individual franchisees without the help they need to succeed, despite paying ongoing fees for that support.

Potential Mitigations

• During your due diligence, ask the franchisor about their growth plans and how they intend to scale their support infrastructure.
• A business advisor can help you evaluate whether the franchisor's staffing and resources are adequate for its projected growth.
• In speaking with current franchisees, ask about the recent quality and responsiveness of the support they have received.

Explanation

This risk was not identified in the FDD, as there is no disclosure of ownership by a private equity firm in Item 1. Such ownership can sometimes lead to a focus on short-term profitability over the long-term health of the brand and its franchisees. This could manifest as increased fees, reduced franchisee support, or pressure to use affiliated vendors. Since this is not a factor here, this specific risk is not present.

Potential Mitigations

• Your attorney can help you verify the franchisor's ownership structure through public records if there is any ambiguity.
• Understanding the franchisor's long-term vision is always important; a business advisor can help you assess their strategic plans.
• Reviewing the 'Assignment' clause in the Franchise Agreement with your attorney helps clarify what happens if the franchisor is sold in the future.

Explanation

This risk was not identified, as Item 1 of the FDD clearly states that Vital Stretch has no parent company. In some franchise systems, the franchisor is a subsidiary of a larger parent corporation. If that parent's financial information is not disclosed when required, it can hide financial instability or other risks. That situation does not apply here.

Potential Mitigations

• It is always prudent to have your attorney confirm the corporate structure outlined in Item 1.
• An accountant should review the provided financial statements in Item 21 to ensure they are for the correct entity.
• If a franchisor is a subsidiary, your attorney can advise if the parent company should be providing a performance guarantee.

Explanation

This risk was not identified, as Item 1 of the FDD states that Vital Stretch has no predecessor. When a franchise system has been operated by a predecessor company, it is important to review that entity's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee failure rates. These past issues can sometimes carry over to the new franchisor. This risk is not present in this case.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor information disclosed in Item 1.
• If a predecessor did exist, researching its history through news archives and other public sources would be a wise step for a business advisor.
• Asking long-tenured franchisees about their experiences under any previous ownership is a key part of due diligence.

Explanation

This risk was not identified, as Item 3 of the FDD states there is no litigation that requires disclosure. A pattern of lawsuits filed against a franchisor by franchisees, particularly claims alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may indicate systemic problems within the franchise relationship. The absence of such litigation is a positive indicator for Vital Stretch.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have been required to be disclosed in Item 3.
• It is still valuable to ask current and former franchisees about any disputes they may have had, even if they did not result in litigation.
• Understanding the dispute resolution process in the Franchise Agreement is important, as it outlines how conflicts are handled.