Explanation

This specific risk was not identified in the FDD Package. The franchisee turnover rates disclosed in Item 20 for the years 2022 through 2024 appear to be relatively low. High turnover is generally a major red flag as it can indicate systemic problems such as franchisee unprofitability, dissatisfaction with the system, or poor franchisor support. Continuously monitoring system health through franchisee communication is important.

Potential Mitigations

• It is still prudent to contact a broad range of current and former franchisees listed in Item 20 to discuss their experiences.
• Developing a strong relationship with a business advisor can help you interpret system trends and franchisee sentiment.
• Your attorney should advise on questions to ask franchisees about the support and challenges within the system.

Explanation

This risk was not identified in the FDD Package. Item 20 data shows steady, but not excessively rapid, growth in the number of franchised units over the last three years. Uncontrolled growth can strain a franchisor's ability to provide adequate support. However, the current growth rate does not appear to outpace the franchisor's capacity, though their financial condition warrants separate scrutiny.

Potential Mitigations

• Discussing the franchisor's plans for managing future growth and scaling support systems with a business advisor is a sound strategy.
• Ask current franchisees about the quality and timeliness of the support they currently receive from the franchisor.
• An accountant can help assess whether the franchisor's financial statements support their capacity for adding new units.

Explanation

The current franchisor entity was formed in 2019, but it is the successor to a predecessor entity that began franchising in 2001. Furthermore, Item 11 details that the path to becoming a franchisee requires years of involvement with the system as a student and instructor. This indicates the system and its management are not new or unproven, but rather well-established with a long operational history.

Potential Mitigations

• Engaging a business advisor to evaluate the long history of the predecessor and the experience of the management team is still recommended.
• It is valuable to ask long-tenured franchisees about the evolution of the system and the transition from the predecessor franchisor.
• Your attorney can clarify the legal and practical implications of the franchisor's successorship status.

Explanation

The business model, focused on martial arts instruction for children and adults, is a well-established industry and not tied to a fleeting trend. Item 1 shows the business has operated for decades through its predecessor, indicating sustained consumer demand. Therefore, the risk of this being a fad business appears low.

Potential Mitigations

• A business advisor can still assist you in analyzing the long-term competitive landscape for martial arts and fitness centers in your local area.
• Discuss the franchisor’s strategies for continued innovation and adaptation with current franchisees.
• It is wise to research local market demand and competition to confirm the concept's viability in your specific region.

Explanation

This risk was not identified in the FDD Package. The executive team, including the President and Chief Organizational Instructor, has decades of experience with the Tiger Schulmann's system, dating back to the predecessor company established in 2001 and affiliated entities from 1993. This extensive history in both the specific industry and the franchise system itself suggests a deeply experienced management team.

Potential Mitigations

• Discussing the management team's long-term vision and strategy with a business advisor can provide valuable insights.
• Asking current franchisees about their direct experiences and the quality of support from the leadership team is recommended.
• Your attorney can help you frame questions about management's handling of past challenges and system evolution.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose that the franchisor is owned by a private equity firm. The ownership appears to be closely held by the system's founder, Daniel Schulmann. Therefore, risks specifically associated with private equity ownership, such as a focus on short-term returns over system health, do not appear to be present.

Potential Mitigations

• Having your attorney confirm the ownership structure of the franchisor and its affiliates is a prudent step.
• It is still beneficial to understand the long-term succession plan for the company with your business advisor.
• You should always ask franchisees about their perception of the franchisor's commitment to long-term brand health.

Explanation

This risk was not identified in the FDD Package. The franchisor is a successor to a predecessor entity and has several affiliates involved in the system, which are disclosed in Item 1. However, the franchisor, TSMA Franchise Systems, Inc., provides its own audited financial statements in Item 21 and does not appear to be a thinly capitalized subsidiary relying on an undisclosed parent for financial backing.

Potential Mitigations

• A thorough review of Item 1 and the relationships between all affiliated entities with your attorney is crucial.
• An accountant should analyze the financial statements to confirm the franchisor's ability to operate independently of any un-guaranteed parent or affiliate support.
• Asking the franchisor to clarify the roles and interdependencies of each affiliate mentioned is a recommended due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly identifies the predecessor entity, TSK Franchise Systems, Inc., and explains the merger. Item 3 discloses litigation involving the predecessor, and Item 4 confirms no bankruptcy history for the predecessor. The disclosure appears to provide the required historical context, mitigating the risk of hidden issues.

Potential Mitigations

• It is still advisable for your attorney to review all disclosures related to the predecessor for completeness.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable firsthand historical context.
• A business advisor can help you assess how the transition from the predecessor may have impacted the system's operations.