Explanation

This risk was not identified in the FDD Package. The franchisor, Moran Industries, Inc. (Moran), was founded in 1990 and has decades of experience franchising several automotive brands. An unproven system presents risks because the business model, brand recognition, and support structures are not well-established, potentially leading to higher failure rates. Moran appears to have extensive experience in the industry and in franchising.

Potential Mitigations

• Verifying the business and franchising experience of the key executives listed in Item 2 can be a useful exercise with your business advisor.
• An attorney can help you investigate the history of the franchisor and its other brands to confirm their track record.
• Speaking with long-term franchisees from the franchisor's other systems can provide insight into their operational stability and experience.

Explanation

This risk was not identified in the FDD Package. The business operates in the established automotive aftermarket sector, providing window tinting and paint protection services. While consumer preferences change, these services have a history of sustained demand. A fad business, tied to a fleeting trend, carries the risk of declining consumer interest, which could jeopardize the long-term viability of your investment even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you research the long-term market trends and competitive landscape for automotive appearance and protection services.
• Engaging with industry associations can provide data on the stability and growth prospects of this particular market segment.
• An assessment of the business's ability to adapt to new vehicle technologies and consumer demands should be conducted with a business consultant.

Explanation

This risk was not identified in the FDD Package. The executives profiled in Item 2 have extensive, multi-decade experience in both the automotive industry and in managing franchise systems. Several key executives are also franchisees themselves. Inexperienced management can be a significant risk, as it may lead to flawed strategies, weak support systems, and a lack of understanding of the franchisee-franchisor relationship, but that does not appear to be the case here.

Potential Mitigations

• It is still prudent to conduct due diligence by speaking with current franchisees about their direct experiences with the management team's competence and support.
• A review of the management team's history with other brands, if any, with your business advisor could provide additional context.
• Your attorney can help you research the public record and reputation of the key individuals listed in Item 2.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that the franchisor is owned by a private equity firm. When a franchise is PE-owned, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of the system, potentially leading to increased fees, reduced support, or a quick sale of the brand.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor through public records to confirm the absence of PE ownership.
• Independent research into the franchisor's history and any past ownership changes can provide insight into their strategic priorities.
• A discussion with long-term franchisees about the consistency of the franchisor's operational philosophy is always a valuable step.

Explanation

This risk was not identified in the FDD Package. The FDD clearly identifies Moran Industries, Inc. as the franchisor and provides its audited financial statements. A failure to disclose a parent company or provide its financials when required can obscure the true financial backing and stability of the system, hiding potential risks from a prospective franchisee.

Potential Mitigations

• An attorney can help confirm the corporate structure and ensure there are no undisclosed parent entities that should have been included in the FDD.
• Your accountant should always verify that the financial statements provided are for the correct legal entity granting the franchise.
• If a parent company were involved, your attorney would advise on the importance of obtaining a parent guarantee for the franchisor's obligations.

Explanation

Moran merged with Alta Mere Industries, Inc. in 2007 and has a history of franchising other brands. The FDD appears to properly disclose this history. In some cases, franchisors may downplay or obscure challenging histories of predecessor companies, such as high failure rates or litigation. This can prevent you from seeing a full picture of the system's past performance and potential inherited issues, but the disclosure here seems adequate.

Potential Mitigations

• A review of the predecessor's history with your attorney is important to understand the system's evolution.
• A business advisor can help you research the public history of any predecessor brands, such as Alta Mere, for additional context.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable first-hand insight into the system's past.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses one recent lawsuit filed by the franchisor against a franchisee for royalty collection, which is not unusual. Importantly, there are no disclosed lawsuits initiated by franchisees against the franchisor alleging fraud, misrepresentation, or other systemic issues. A pattern of such litigation would be a major red flag indicating potential problems with the franchisor's business practices.

Potential Mitigations

• It is always prudent for your attorney to review the details of any disclosed litigation, even if it appears routine.
• A business advisor can help you perform independent online searches for any other legal disputes involving the franchisor that may not have met the disclosure threshold for Item 3.
• You should discuss any disclosed litigation with current franchisees to get their perspective on the franchisor's handling of disputes.