Explanation

This risk was not identified in the FDD package. The data in Item 20 shows the system is shrinking, not growing rapidly. A franchisor expanding too quickly can strain its resources, leading to inadequate support for franchisees. Diligent review of the franchisor's capacity to support its growth is a key piece of due diligence.

Potential Mitigations

• When evaluating a franchise, your accountant should analyze the franchisor's financial statements to ensure they have the capital to support growth.
• Speaking with existing franchisees about the quality and timeliness of franchisor support can provide valuable insight.
• A business advisor can help assess if the franchisor's support infrastructure is keeping pace with its unit expansion.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that United has been offering franchises since 1991, making it an established, rather than new or unproven, system. When considering a new franchise, it's important to recognize the higher risks associated with an unproven business model and limited brand recognition.

Potential Mitigations

• For any franchise, it is wise to have your business advisor investigate the franchisor's history and the track record of its management team.
• An accountant's review of the financial stability is particularly critical for a new or emerging franchise brand.
• Your attorney should advise on negotiating more franchisee-favorable terms to compensate for the higher risk of an unproven system.

Explanation

This risk was not identified in the FDD package. The check cashing and financial services industry is a long-established business sector, not a temporary fad. Investing in a business based on a short-term trend can be risky, as consumer interest may decline, leaving you with a long-term contractual obligation for an obsolete business.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term consumer demand for a franchise's products or services.
• In any franchise, you should evaluate the franchisor's commitment to innovation and adapting to market changes.
• Your financial advisor can assist in creating financial models that project performance under various market conditions.

Explanation

This risk was not identified in the FDD package. Item 2 shows that United's key executives have extensive, long-term experience in the financial services business, with some involved since 1977. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• When evaluating any franchise opportunity, a business advisor can help you vet the background and qualifications of the management team.
• Speaking with existing franchisees provides direct feedback on the competence and effectiveness of the franchisor's leadership.
• Your attorney can help you understand the experience and stability of the franchisor's management as disclosed in Item 2.

Explanation

This risk was not identified in the FDD package. The disclosures in Item 1 do not indicate that the franchisor is owned or controlled by a private equity firm. When a franchisor is PE-owned, there can be a risk that decisions prioritize short-term investor returns over the long-term health of the franchise system.

Potential Mitigations

• For any franchise, your business advisor can help research the ownership structure and the track record of any parent or investment company.
• Talking to franchisees who have been through a change in ownership can provide insight into shifts in company culture and support.
• Your attorney should review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold.

Explanation

This risk was not identified in the FDD package. United appears to be the primary entity, and there is no indication of an undisclosed parent company whose financial information would be material to your decision. In some cases, a franchisor might be a thinly capitalized subsidiary, making the financial health of its parent company a critical piece of information.

Potential Mitigations

• Your attorney can help verify a franchisor's corporate structure to ensure there are no undisclosed parent entities.
• If a parent company guarantees the franchisor's obligations, it's important to have your accountant review the parent's financial statements.
• Understanding the full corporate structure is a key part of the due diligence process with any franchise.

Explanation

This risk was not identified in the FDD package. Item 1 does not list any predecessors for United, indicating it has operated the system under its current structure for its history. A history of predecessors can sometimes obscure past issues like high turnover or litigation, so it is an important area to review when present.

Potential Mitigations

• When a predecessor is disclosed, asking your attorney to help you investigate its history is a prudent step.
• Contacting long-term franchisees to inquire about their experience under any previous ownership can provide valuable context.
• A business advisor can help you analyze how a change in ownership from a predecessor might impact the current system.

Explanation

This risk was not identified in the FDD package. Item 3 discloses one past lawsuit from which United was fully dismissed without payment. This does not represent a pattern of litigation alleging fraud or misrepresentation from other franchisees. A history of such lawsuits can be a major red flag indicating potential systemic issues with a franchisor's practices.

Potential Mitigations

• A thorough review of Item 3 with your attorney is crucial to understand the nature and outcome of any disclosed litigation.
• Your attorney can conduct independent searches for litigation that may not be disclosed in the FDD.
• A pattern of lawsuits where franchisees allege fraud or misrepresentation should be considered a serious warning sign.