Explanation

This risk was not identified, as the FDD's Item 20 tables show that there have been no operating Trend franchises to date, so there is no data on franchisee turnover. In general, high turnover rates can be a major red flag, often indicating systemic problems such as unprofitability, franchisee dissatisfaction, or inadequate support. It is a critical metric for assessing the health of a franchise system.

Potential Mitigations

• When evaluating any franchise, your accountant should carefully analyze the turnover rates presented in Item 20 over a three-year period.
• Engaging a business advisor to research industry-average turnover rates can provide a valuable benchmark for comparison.
• It is critical to have your attorney help you formulate questions for former franchisees to understand why they left the system.

Explanation

This risk was not identified, as Item 20 indicates the Trend brand has zero operating units and therefore has not experienced any growth. For other franchise systems, excessively rapid growth can be a concern because a franchisor's support infrastructure may fail to keep pace with the needs of a quickly expanding franchisee base.

Potential Mitigations

• Your business advisor can help assess whether a franchisor's growth plans are aligned with their support capabilities.
• It's wise to ask existing franchisees in a rapidly growing system about the quality and timeliness of the support they currently receive.
• An accountant can review the franchisor's financial statements to see if they are investing in infrastructure to support expansion.

Explanation

This risk was not identified. The franchise is for the operation of a hotel, which is an established industry with long-term demand, not a business based on a short-lived fad. Investing in a fad-based business is risky because consumer interest may disappear, leaving you with a long-term contract for a business with no customers.

Potential Mitigations

• A business advisor can help you research the long-term market trends and sustainability of any business concept before you invest.
• It is wise to review a franchisor's history of innovation and adaptation to see how they respond to changing market conditions.
• Your financial advisor can help assess whether a business model is resilient enough to withstand shifts in consumer tastes.

Explanation

This specific risk was not identified. The management team described in Item 2 has prior and current experience in the hotel and franchising industries through their involvement with brands like Super 8 and their existing My Place Hotels system. In franchising, inexperienced management can be a concern as they may lack the specific skills needed to provide effective support and strategic direction for a franchise network.

Potential Mitigations

• Your business advisor should always help you vet the backgrounds of the key executives listed in Item 2 of an FDD.
• When considering any franchise, it is prudent to ask existing franchisees about the competence and responsiveness of the management team.
• Your attorney can help you understand the difference between industry experience and specific franchising experience when evaluating a management team.

Explanation

This risk was not identified in the FDD, which does not disclose ownership by a private equity firm. When this ownership structure exists, there can be a risk that the franchisor's decisions prioritize short-term investor returns over the long-term health of the franchise system and its franchisees.

Potential Mitigations

• Your business advisor can help research a private equity firm's track record with other franchise systems it has owned.
• It's wise to ask franchisees about any changes in support or fees since a private equity acquisition.
• Your attorney can help assess any terms in the Franchise Agreement that allow the franchisor to easily sell the system.

Explanation

This risk was not identified, as Item 1 does not indicate the existence of a parent company whose financials would be material to disclose. In some cases, a franchisor might be a subsidiary of a larger parent company. If the parent's financial health is critical to supporting the franchise system, its financial statements should also be disclosed and reviewed.

Potential Mitigations

• An attorney can help determine if a parent company's financials should have been included based on the franchisor's structure.
• If a parent guarantee is offered, an accountant should review the parent's financial statements for stability.
• A business advisor can help you research the relationship and dependencies between a franchisor and its parent company.

Explanation

This risk was not identified, as Item 1 states that MPHOA has no predecessors. In cases where a franchise system was acquired from a predecessor, it is important to review the predecessor's history for any issues like litigation, bankruptcy, or high franchisee failure rates, as these could indicate underlying problems with the system that may have been inherited by the current franchisor.

Potential Mitigations

• Your attorney should always carefully review the predecessor information in Items 1, 3, and 4 of any FDD.
• A business advisor can help research a predecessor's public track record for franchisee complaints or business issues.
• It is beneficial to ask long-term franchisees about their experiences under any previous ownership.