Explanation

This risk was not identified in the FDD package. UNITS Franchising Group, Inc. (UNITS FGI) has been offering franchises since 2006 and has an established system. However, when evaluating any franchise, especially newer ones, a lack of a proven track record can increase risks related to the viability of the business model, brand recognition, and the franchisor's ability to provide effective support.

Potential Mitigations

• When considering a new franchise, a business advisor should help you conduct extensive due diligence on the founders' industry and franchising experience.
• Speaking with the very first franchisees of a new system is critical to understanding the early challenges and the franchisor's responsiveness.
• Your attorney might be able to negotiate more favorable terms to compensate for the higher risk associated with an unproven system.

Explanation

The business operates in the self-storage, transportation, and moving industries, which Item 1 describes as well-developed and highly competitive. While the business model appears to have sustained demand, you must evaluate if the specific concept has long-term viability against numerous competitors. A business tied to a fleeting trend could face failure when consumer interest wanes, even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you independently research the long-term market demand and competitive landscape for mobile storage and moving services.
• It is important to evaluate the franchisor's plans for innovation and adaptation to maintain a competitive edge.
• Your accountant can help you model the financial resilience of the business against potential economic downturns or shifts in consumer behavior.

Explanation

The core leadership team, specifically the President/CEO and Vice President, has been with the company since its incorporation in 2005 and possesses prior experience in the self-storage industry. While some members of the management team are more recent additions, the FDD does not indicate a broad lack of experience. However, a franchisee should always assess the depth and relevance of the entire support team's experience.

Potential Mitigations

• It is prudent to research the backgrounds of the entire management team, focusing on their direct experience in both the industry and in supporting a franchise system.
• When speaking with current franchisees, asking specific questions about the quality of support and the expertise of the corporate team is advisable.
• Your business advisor can help you assess whether the management team's collective experience aligns with the support needs of the franchise.

Explanation

This risk was not identified in the FDD package, as UNITS FGI does not appear to be owned by a private equity firm. This type of ownership can sometimes lead to decisions that prioritize short-term investor returns, such as cutting support or increasing fees, over the long-term health of the franchise system. The franchisor's right to sell the system, common in all franchise agreements, can introduce a new owner with a different philosophy.

Potential Mitigations

• When a franchisor is PE-owned, a business advisor can help research the firm's track record with other franchise brands.
• It is wise to ask existing franchisees about any changes in support or culture since a PE acquisition.
• Your attorney should analyze the assignment clause in the Franchise Agreement to understand your rights if the system is sold.

Explanation

UNITS FGI discloses an affiliate, MHM Group, Inc., that owns the intellectual property. The franchisor itself appears to be the primary operating and franchising entity, and its audited financial statements are provided. There is no indication that a parent company's financials are required but have been withheld. This structure appears transparent, though the reliance on an affiliate for IP is a point to note.

Potential Mitigations

• Your attorney should review the licensing agreement between the franchisor and its affiliate that owns the intellectual property.
• An accountant should confirm that the provided financial statements are for the correct legal entity offering the franchise.
• When a parent company's financials are provided, they require the same level of scrutiny from an accountant as the franchisor's.

Explanation

This risk was not identified in the FDD package. Item 1 states that UNITS FGI has no predecessors. In cases where a franchisor has acquired a system from a predecessor, it is crucial to investigate the predecessor's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee failure rates, as these issues could be inherited by the new franchisor.

Potential Mitigations

• If a predecessor is disclosed, your attorney should carefully review their history as detailed in Items 1, 3, and 4.
• Independent research into a predecessor's track record can provide valuable context; a business advisor may be able to assist.
• Asking long-term franchisees about their experience under any previous ownership is a key due diligence step.

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 disclosed litigation, particularly claims from other franchisees alleging fraud or misrepresentation, is a positive indicator. However, this does not guarantee a dispute-free relationship and does not cover litigation that is not deemed material.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the threshold for disclosure in Item 3.
• It remains important to ask current and former franchisees about their experiences and any disputes they may have had.
• Understanding the dispute resolution process outlined in Item 17 is still crucial, even in the absence of disclosed litigation.