Explanation

The data tables in Item 20 report very low franchisee turnover from terminations or cessations. However, this appears to conflict with the list of 'Franchisees Who Left The System' in Exhibit E, which names several more departed franchisees than are accounted for in the tables. While the reported turnover rate is low, this data inconsistency is a risk, further detailed under the 'Questionable Outlet Data' risk.

Potential Mitigations

• It is essential to contact a significant number of former franchisees listed in Exhibit E to understand their reasons for leaving the system.
• Your franchise attorney should help you draft questions to ask former franchisees about their experiences and profitability.
• An accountant can help you compare information from franchisee discussions with the financial performance data presented in Item 19.

Explanation

This risk was not identified in the FDD Package. The franchisor, UNITS Franchising Group, Inc. (UNITS), began offering franchises in 2006 and has an established system with over 70 locations. An unproven system can pose risks due to a lack of brand recognition, underdeveloped support, and unverified profitability, but that does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your business advisor assess the system’s maturity and market position.
• Your attorney should still review the franchisor's history in Item 1 for any relevant background information.
• Speaking with the earliest-starting franchisees listed in Item 20 can provide valuable insight into the system's evolution and stability.

Explanation

This risk was not identified in the FDD Package. The business operates in the well-established moving and portable storage industry, which is not based on a short-term trend or fad. Investing in a fad business is risky because consumer demand may disappear, leaving you with long-term contractual obligations and a non-viable business.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for any franchise's products or services.
• You should always evaluate a franchisor's plans for innovation and adaptation to changing market conditions.
• Your financial advisor can help assess a business model's sustainability and resilience to economic shifts.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have substantial and long-term experience in both the self-storage industry and in franchising. 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.

Potential Mitigations

• It is always a good practice to have a business advisor help you vet the background and specific experience of any franchisor's management team.
• Consulting with existing franchisees is an effective way to gauge the competence and responsiveness of the leadership team.
• Your attorney can help you investigate the public background of key executives for any potential concerns.

Explanation

This risk was not identified in the FDD Package. The disclosures in Item 1 and the financial statements do not indicate that the franchisor is owned by a private equity firm. Private equity ownership can sometimes introduce risks related to a focus on short-term returns over the long-term health of the franchise system, potentially leading to increased fees or reduced support.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 of the FDD.
• If a franchisor is owned by a PE firm, a business advisor can help you research the firm's track record with other franchise systems.
• It is wise to ask existing franchisees about any changes in system direction or support levels following an ownership change.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly states that the franchisor has no parent company. Failing to disclose a parent company, especially one that guarantees obligations or is a key supplier, can obscure a full understanding of the franchise system's financial backing and control structure.

Potential Mitigations

• Your attorney should always confirm the corporate structure disclosed in Item 1.
• If a parent company were to exist and provide a guarantee, an accountant should review its financial statements for stability.
• Understanding the relationship between all affiliated companies mentioned in the FDD is a key part of due diligence.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessors. When a franchisor has predecessors, it is important to investigate their history for potential issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate inherited systemic problems.

Potential Mitigations

• Your attorney should always carefully review Item 1 of the FDD for any mention of predecessors.
• If a predecessor exists, independent research into its history can be a valuable step in due diligence, which a business advisor could assist with.
• Speaking with long-term franchisees who operated under a predecessor can provide crucial insights.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems with the franchisor's practices or the viability of the business model.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review any litigation disclosed in Item 3.
• It is wise to ask existing franchisees if they are aware of any litigation or disputes not disclosed in the FDD.
• Your attorney can conduct independent searches for litigation involving the franchisor as part of a thorough due diligence process.