Explanation

The data tables in Item 20 do not indicate a high rate of franchisee turnover, showing zero terminations, non-renewals, or cessations of operation for other reasons from 2022-2024. However, Exhibit F, Part B lists two franchises that left the system during the prior fiscal year. High turnover can be a red flag for systemic problems, so this discrepancy warrants further investigation to understand the health and stability of the franchise system.

Potential Mitigations

• It is essential to ask your attorney to help you question the franchisor about the discrepancy between the Item 20 tables and the list of former franchisees.
• You should contact a significant number of current and former franchisees from the lists in Exhibit F to discuss their experiences.
• Your business advisor can help you analyze the underlying reasons for any franchisee departures you uncover during your due diligence.

Explanation

This specific risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide necessary support to its franchisees. It's a positive sign that the growth here appears measured, suggesting resources may not be overextended. A steady pace allows for more robust development of training, marketing, and operational support systems, which benefits all franchisees.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor's growth plans in relation to its support infrastructure.
• Asking current franchisees about the quality and timeliness of support can provide insight into the franchisor's operational capacity.
• An accountant should review the franchisor's financial statements to ensure it has the capital to support its projected growth.

Explanation

This risk was not identified in the FDD package. The business model, focused on waxing and hair removal services, is part of the established, multi-billion-dollar beauty and personal care industry, not a new or fleeting trend. This suggests a more stable, long-term consumer demand. Investing in a business with a proven market can reduce the risk of failure due to waning consumer interest, which is a key danger of fad-based businesses.

Potential Mitigations

• Engaging a business advisor to research the long-term outlook for the beauty and waxing industry in your specific market is recommended.
• Your accountant can help you analyze the financial stability of businesses in this sector.
• Discuss the competitive landscape and market sustainability with your attorney as part of your overall due diligence.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor's parents are Uni K Wax Group Inc. and Uni K Wax Holdings, LLC, which do not appear to be private equity firms. Private equity ownership can introduce risks related to short-term profit motives over long-term brand health. The absence of such ownership can suggest a greater focus on the sustainable growth and operational success of the franchise system.

Potential Mitigations

• Your attorney can help you verify the ownership structure detailed in Item 1 to confirm the absence of private equity involvement.
• Discussing the franchisor's long-term vision with management can provide insight into their strategic priorities.
• A business advisor can help you research the history and reputation of the parent companies.

Explanation

This risk was not identified in the FDD package. Uni K Wax clearly discloses its predecessor, UKW Franchising Company, LLC, in Item 1. It provides a history of the predecessor's franchising activities from 2006 to 2023. This transparency allows you to understand the system's lineage and provides a basis for further due diligence into its historical performance and any inherited issues, which is a positive disclosure practice.

Potential Mitigations

• Asking your attorney to review all information related to the predecessor is a prudent step.
• You should use the information provided to ask long-tenured franchisees about their experience under the prior ownership.
• A business advisor can help you research the public record of the predecessor company for any additional insights.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." The absence of a pattern of litigation, particularly claims from franchisees alleging fraud or misrepresentation, is a positive indicator. It may suggest a healthier franchisor-franchisee relationship and more consistent adherence to disclosure and operational promises.

Potential Mitigations

• Your attorney should still perform a public records search to independently verify the absence of significant litigation.
• In your discussions with current and former franchisees, it is wise to ask about any past or pending disputes they are aware of.
• Engage your business advisor to assess the overall health of franchisor-franchisee relations through your due diligence calls.