Explanation

This specific risk was not identified in the FDD Package. The provided Item 20 tables for Area Representatives do not show an unusually high rate of turnover. However, the FDD states that detailed information for individual franchise units is located in a separate Unit FDD, which was not provided for this analysis. High turnover can be a strong indicator of systemic problems, franchisee dissatisfaction, or lack of profitability within a franchise system.

Potential Mitigations

• You should request and review the Toro Taxes Individual Unit FDD to analyze turnover rates at the unit level, which is a critical indicator of system health, with your business advisor.
• Contacting a significant number of current and former unit-level franchisees is essential for understanding their experiences and reasons for any departures.
• Your attorney can help formulate questions for former franchisees to better understand the system's operational and financial realities.

Explanation

This risk was not identified in the provided FDD. The data in Item 20 shows system growth for Area Representatives from 8 to 25 over a three-year period. While this is strong growth, it does not appear to be so rapid as to inherently outpace the franchisor's ability to provide support, especially given the Area Representative model. Rapid growth can sometimes strain a franchisor's resources, leading to inadequate support for franchisees.

Potential Mitigations

• It is wise to ask the franchisor about their plans for scaling support infrastructure to match continued growth.
• A business advisor can help you assess whether the franchisor's current support staff and systems seem adequate for the number of franchisees.
• In discussions with current franchisees, inquire specifically about the quality and timeliness of the support they are currently receiving.

Explanation

This risk was not identified in the FDD package. The business of offering tax preparation and related financial services is a well-established industry with consistent demand. It is not based on a fleeting trend or novelty, which mitigates the risk of the entire business concept becoming obsolete.

Potential Mitigations

• A business advisor can help you research the stability and long-term trends within the tax preparation industry in your specific market.
• It is still prudent to assess the company's plans for innovation to stay competitive within its established industry.
• Your financial advisor can assist in evaluating the business model's resilience to economic cycles.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives have been involved with the Toro Taxes brand, its predecessors, or its affiliates for many years, with some experience dating back to 1999. The management team appears to have substantial experience in both the tax preparation industry and in franchising.

Potential Mitigations

• It is still a good practice to verify the background and reputation of key management personnel.
• A business advisor can help you confirm the management team's track record within the franchise industry.
• When speaking with current franchisees, you should ask about their perception of the management team's competence and leadership.

Explanation

This risk was not identified in the FDD package. Item 1 and the general structure of the company as described do not indicate that the franchisor is owned or controlled by a private equity firm. The franchise appears to be founder-owned and operated. Private equity ownership can sometimes introduce a focus on short-term profitability over the long-term health of the system.

Potential Mitigations

• A business advisor can help you confirm the ownership structure of the franchisor.
• Understanding who makes key decisions for the franchise system is an important part of due diligence.
• Your attorney can review the franchisor's right to assign the agreement, which would be relevant if the system were sold in the future.

Explanation

This risk was not identified in the FDD package. Item 1 states clearly, "We do not have a parent company." It discloses a number of affiliates, but it does not appear that a controlling parent entity's existence or financials are being improperly withheld.

Potential Mitigations

• Your attorney can help you understand the relationship between the franchisor and the various affiliates listed in Item 1.
• An accountant should review any transactions between the franchisor and its affiliates disclosed in the financial statements.
• It is a good practice to ask for an organizational chart to visualize the corporate structure.