Explanation

The FDD's Item 20 data for operating franchises shows a low turnover rate, with only two units reacquired by the franchisor and no terminations in 2024. However, a significant number of franchisees have signed agreements but not yet opened, a separate issue addressed under Miscellaneous Risks. Based solely on the data for operating units, this specific risk of high turnover appears low.

Potential Mitigations

• It is still advisable to contact current and former franchisees listed in the FDD to discuss their experiences and satisfaction with the system.
• Your business advisor can help you analyze the data in Item 20's tables to understand the full context of outlet status changes.
• Ask your attorney to clarify the distinction between a transfer, a termination, and a unit that never opened to fully assess system health.

Explanation

This risk was not identified. Tommy's Express LLC (Tommy's Express) began franchising in 2016 and has over 200 operating units, indicating it is an established system, not a new or unproven one. A new system carries higher risks due to a lack of brand recognition, unproven operational models, and potentially underdeveloped support structures. This franchise has moved beyond that initial high-risk phase.

Potential Mitigations

• When evaluating any franchise, it is crucial to have your business advisor assess the maturity and track record of the system.
• Reviewing the franchisor's history and the experience of its management team with an attorney is a key due diligence step.
• Your accountant should analyze the financial statements of any franchisor to ensure it has a stable operating history.

Explanation

This risk was not identified. The car wash industry is a long-established segment of the automotive care market with consistent consumer demand. While Tommy's Express has an innovative model, the core service is not based on a fleeting trend or fad. A business based on a fad carries a high risk that consumer interest will decline, potentially leading to failure long before the franchise term ends.

Potential Mitigations

• For any business concept, a business advisor can help you conduct independent market research to assess long-term consumer demand.
• It is wise to evaluate a franchisor's plans for innovation and adaptation to stay relevant in the marketplace.
• Your financial advisor can assist in analyzing a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. The management team described in Item 2 has extensive experience in the car wash industry, with key executives having been with the company or its affiliates for many years. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate support for franchisees. This does not appear to be a concern here.

Potential Mitigations

• It is always prudent to have a business advisor help you vet the backgrounds of the key management team for any franchise system.
• Speaking with existing franchisees provides valuable insight into the quality and competence of the franchisor's leadership.
• An attorney can help investigate the past business performance of key executives if there are any concerns.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose ownership by a private equity firm. When a franchise is owned by a private equity firm, there may be a focus on short-term returns over the long-term health of the system, which can sometimes negatively impact franchisees through cost-cutting or increased fees. That specific risk does not appear to be present here.

Potential Mitigations

• Your business advisor should always help you research the ownership structure of the franchisor.
• When private equity is involved, speaking with franchisees about changes since the acquisition is a critical due diligence step.
• An attorney can review assignment clauses in the franchise agreement to understand what happens if the franchisor is sold.

Explanation

This risk was not identified. Item 1 states that the franchisor, Tommy's Express, does not have any predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. Having a predecessor with a negative history of litigation or bankruptcy could be a red flag, but that is not the case here.

Potential Mitigations

• Your attorney should always review Item 1 carefully to identify any predecessors and investigate their history if they exist.
• When a predecessor is listed, it is wise to research their litigation and bankruptcy history, as detailed in Items 3 and 4.
• A business advisor can help assess how a predecessor's history might impact the current franchise system's health.