Explanation

This risk was not identified in the FDD Package. While rapid growth can strain a franchisor's support systems, the data in Item 20 indicates the system has been shrinking, not growing rapidly, over the past two years. However, a prospective franchisee should always evaluate if a franchisor has the infrastructure to support its stated growth plans.

Potential Mitigations

• During discussions with the franchisor, inquire about their projected growth for the next several years and the specific investments they are making in support staff and infrastructure.
• A business advisor can help you analyze whether a franchisor's support systems seem adequate for its size and future growth plans.
• Engaging with existing franchisees can provide insight into whether they feel the current level of support is sufficient.

Explanation

This risk was not identified in the FDD Package. The franchisor's predecessor has been operating since 2001, providing a significant operational history. While the current franchising entity, Rocksolid, is more recent (2018), and has faced challenges including bankruptcy, the system itself is not new or unproven. A new system would present risks like undeveloped support and minimal brand recognition.

Potential Mitigations

• For any new franchise system, your attorney should carefully review the experience of the management team outlined in Item 2.
• A business advisor can help assess the viability and market testing of a new or unproven concept before you invest.
• Speaking with the very first franchisees in a new system is crucial to understanding the early challenges and the quality of franchisor support.

Explanation

This risk was not identified in the FDD Package. The business model, focused on kitchen and bathroom remodeling, is part of a large and established home services industry rather than being based on a novel or fleeting trend. A business tied to a fad faces the risk of declining consumer interest, which could jeopardize its long-term viability even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you research the long-term market demand and historical trends for the industry in which the franchise operates.
• When evaluating a trendy concept, it is wise to ask the franchisor about its plans for innovation and adaptation beyond the current trend.
• Your financial advisor can help assess the financial resilience of a business model and its potential susceptibility to shifts in consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have been with the company or its predecessor and affiliates for many years, suggesting significant experience within this specific business and brand. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• A business advisor can help you scrutinize the backgrounds of the key executives listed in Item 2 to assess their experience in both the specific industry and in franchising.
• In discussions with current franchisees, it is beneficial to ask about their perception of the management team's competence and responsiveness.
• Your attorney can help you understand the operational track record of the management team by reviewing their history as disclosed in the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses that the franchisor's ultimate parent is Trend Group S.p.A., an Italian company, but it does not appear to be a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially affecting franchisee support and costs.

Potential Mitigations

• If a franchisor is owned by a private equity firm, your business advisor should research the firm's reputation and track record with other franchise brands.
• It is important to ask current franchisees if they have noticed changes in franchisor support or philosophy since a private equity acquisition.
• Your attorney can help you understand the implications of assignment clauses in the franchise agreement, as PE firms often plan to sell the system.

Explanation

This risk was not identified in the FDD Package. Item 1 identifies the franchisor's parent company, Rocksolid Granit (USA), Inc., and ultimate parent, Trend Group S.p.A. The franchisor's own audited financial statements are provided in Exhibit D. In situations where a franchisor is a thinly capitalized subsidiary, the failure to provide parent company financials could hide significant risks.

Potential Mitigations

• An accountant should review the franchisor's financials to assess its capitalization and determine if it appears to be a shell entity.
• Your attorney can advise if, based on the franchisor's structure and any guarantees, parent company financials should have been included.
• If a parent company guarantees the franchisor's performance, ensure your attorney reviews the terms of that guarantee.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly identifies the predecessor entity. Items 3 and 4 disclose litigation and bankruptcy history involving the predecessor and current franchisor. While there are significant issues disclosed, the FDD does not appear to obscure the predecessor's history. Concealing a predecessor's negative track record would prevent you from having a full picture of the system's historical challenges.

Potential Mitigations

• Your attorney should carefully review all information related to predecessors in Items 1, 3, and 4.
• When speaking with long-term franchisees, inquire about their experiences under any previous ownership or predecessor entities.
• A business advisor can help you conduct independent research on a predecessor company's history and reputation.