Explanation

This risk was not identified in the FDD package. The data in Item 20 does not show a period of unusually rapid franchise growth. Rapid expansion can sometimes strain a franchisor's ability to provide adequate support, training, and quality control to all of its franchisees. When a system grows too quickly, new franchisees may find that the resources they were promised are spread too thin, impacting their ramp-up period and long-term success.

Potential Mitigations

• Your business advisor can help you analyze the franchisor's growth plans relative to their support infrastructure.
• Inquiring with existing franchisees about the current quality and timeliness of franchisor support is a valuable due diligence step.
• Having an accountant review the franchisor's financial statements can help determine if they have allocated sufficient resources for sustainable growth.

Explanation

This risk was not identified. The information in Items 1 and 20 indicates that United and its predecessors have been involved in franchising for over a decade. An unproven system presents higher risks because its business model, operational procedures, and brand recognition have not yet withstood the test of time. New franchisors may also lack the experience and resources needed to provide effective, consistent support to their franchisees, which can hinder your potential for success.

Potential Mitigations

• It is always wise to have a business advisor help you conduct extensive due diligence on the franchisor's history and the track record of its management team.
• Speaking with the earliest franchisees in a system can provide valuable insight into how the brand and its support have evolved over time.
• An attorney can help you assess whether a newer system offers more favorable terms to compensate for the higher inherent risk.

Explanation

This risk was not identified in the FDD package. The franchise operates in the real estate brokerage industry, which is a well-established and long-standing business sector. A fad-based business is one that relies on a short-lived trend, posing a significant risk that customer interest will decline, leaving you with a long-term contractual obligation for a business that is no longer viable. It is important to assess if a concept has sustainable, long-term consumer demand.

Potential Mitigations

• A business advisor can help you research the industry to assess its long-term viability and growth prospects.
• Analyzing a company's plans for innovation and adaptation can provide insight into its strategy for staying relevant in a changing market.
• It is prudent to consider a business model's resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

This risk was not identified. Item 2 of the FDD indicates that the key executives have extensive and long-term experience in the real estate industry and with this franchise system or its predecessors. Inexperienced management can be a significant risk because they may not have the expertise to manage a franchise system effectively, provide quality support, or make sound strategic decisions. This can negatively impact the entire network, including your potential for success.

Potential Mitigations

• Thoroughly vetting the backgrounds of the franchisor's management team is a critical due diligence step your business advisor can assist with.
• Speaking with current franchisees about their perception of management's competence and the quality of support is highly recommended.
• An attorney can help you understand the contractual obligations the franchisor has regarding support, regardless of management's experience level.

Explanation

This risk was not identified. Item 1 of the FDD appears to properly disclose the parent and ultimate parent entities of the franchisor. Failing to disclose a parent company can be a significant issue, as it may obscure the true financial backing and stability of the franchisor, especially if the direct franchisor entity is thinly capitalized. Complete disclosure allows you and your advisors to assess the financial health of the entire controlling organization.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1, particularly if the franchisor entity appears to be newly formed.
• If a parent company guarantees the franchisor's obligations, it is essential that your accountant reviews the parent's financial statements.
• Ensuring all controlling entities are disclosed allows for a complete picture of the organization you are partnering with.

Explanation

This risk was not identified. The FDD provides a detailed history of the franchisor's predecessors in Item 1. Failing to disclose or obscuring the history of a predecessor entity can hide important information about the franchise system's past, such as previous bankruptcies, high litigation rates, or significant franchisee turnover. A complete and transparent history is necessary for you to assess the long-term stability and integrity of the brand and its operating system.

Potential Mitigations

• A thorough review of Items 1, 3, and 4 with your attorney is crucial to understand the full history of the franchisor and any predecessors.
• Your business advisor can assist with independent research into a predecessor's public track record if there are any concerns.
• Long-term franchisees can be an invaluable source of information regarding their experiences under previous ownership.