Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a system that has been shrinking or experiencing high churn, not one undergoing rapid growth that might outstrip its support capabilities. Rapid growth can strain a franchisor's resources, leading to a decline in the quality of support, training, and site selection assistance for new franchisees, which could compromise the entire system's health and brand reputation.

Potential Mitigations

• A business advisor can help you assess if a franchisor's projected growth aligns with their demonstrated support infrastructure.
• Evaluating a franchisor's financial statements with your accountant can reveal if they are investing sufficiently in support staff and systems to manage growth.
• Discussions with franchisees who joined at different stages of growth can provide insight into the consistency of franchisor support.

Explanation

This risk was not identified in the FDD package. The franchisor, UG Franchise Operations, LLC (UFC GYM), began offering franchises in 2013 and has over a decade of operational history. Investing in a new or unproven franchise system carries higher risks, as the business model may not be validated, brand recognition is low, and the franchisor may lack the experience to provide effective support, which can increase the likelihood of business failure.

Potential Mitigations

• For any franchise, it is wise to have a business advisor help you research the franchisor's history and the experience of its leadership team.
• An accountant should review the financial statements to determine if a young system has adequate capitalization.
• Your attorney can help you understand the risks associated with investing in a system with a limited track record.

Explanation

This risk was not identified in the FDD package. The business model is centered on MMA-oriented fitness, a segment of the fitness industry that has shown sustained consumer interest and is not typically considered a short-term fad. A fad business relies on a temporary trend, and investing in one poses the risk that customer demand will disappear before you can achieve a return on your investment, leaving you with long-term contractual obligations.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term consumer demand for any franchise concept.
• Evaluating a franchisor's plans for product and service innovation is important for gauging its ability to adapt to changing market trends.
• Your financial advisor can help you model the financial risks if consumer preferences were to shift away from the core offering.

Explanation

This risk was not identified in the FDD package. The executive biographies in Item 2 indicate that the management team has extensive experience in the fitness industry and with the UFC GYM brand, with some executives having been with the company for over a decade. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher potential for system-wide problems, even if the business concept itself is sound.

Potential Mitigations

• It is always a good practice to research the professional backgrounds of the franchisor's key executives with your business advisor.
• Speaking with current franchisees can provide valuable insight into the competence and effectiveness of the management team.
• An attorney can help you understand how the franchise agreement protects you if franchisor support is inadequate.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the parent company structure, including Ultimate NeV, LLC. Failure to disclose a parent entity that guarantees obligations, controls the franchisor, or is an essential supplier can hide significant risks. If a thinly capitalized subsidiary is the franchisor, the parent's financial health is material to understanding the stability of the entire system, and its omission would be a serious disclosure issue.

Potential Mitigations

• Your attorney should always verify the corporate structure and identify all parent and affiliate companies disclosed in Item 1.
• If a parent company provides a guarantee, it's crucial for your accountant to review the parent's financial statements.
• A business advisor can help assess the operational and financial relationships between a franchisor and its parent.

Explanation

This risk was not identified in the FDD package. Item 1 discloses that the franchisor previously offered franchises under the LA Boxing brand but does not mention any other predecessors from which it acquired substantial assets. A predecessor's negative history, such as bankruptcies or high franchisee failure rates, could signal underlying problems that may have been inherited by the current franchisor. A clean and transparent predecessor history is generally a positive sign.

Potential Mitigations

• It's a good practice to have your attorney review the predecessor disclosures in Items 1, 3, and 4.
• When a predecessor is disclosed, asking long-tenured franchisees about their experience under previous ownership can be insightful.
• A business advisor can help you conduct independent research on a predecessor's business reputation if one is listed.