Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a consistent decrease in the number of franchised outlets over the past three years, indicating system contraction rather than rapid growth. While avoiding the risks of overexpansion, this trend presents its own significant challenges regarding brand health and system viability, which are covered under the 'High Franchisee Turnover' risk.

Potential Mitigations

• In any franchise opportunity, it is wise to have your accountant compare growth rates in Item 20 with the franchisor's financial capacity in Item 21.
• Engaging a business advisor to research industry benchmarks for sustainable growth can provide valuable context.
• Your attorney should help you ask current franchisees about the quality and consistency of franchisor support during periods of growth or decline.

Explanation

This risk was not identified in the FDD package. Velofix Holdings USA, Inc. (Velofix) began franchising in the United States in 2014 and its Canadian affiliate has been operating since 2012. While the system is facing significant challenges, it is not a new or unproven startup. The risks identified relate more to poor performance and financial instability rather than a lack of operating history.

Potential Mitigations

• When evaluating a newer franchise system, it's crucial to have a business advisor help assess the founders' experience in both the industry and franchising.
• Your accountant should scrutinize the financials of a new system for adequate capitalization to support its initial growth phase.
• Speaking with the very first franchisees of any system provides essential insight an attorney can help you gather.

Explanation

This risk was not identified in the FDD package. The business of mobile bicycle repair and servicing targets a well-established and enduring market. Bicycles are a common mode of transportation and recreation, suggesting that the services offered are not based on a short-term fad or fleeting trend.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term consumer demand for any franchise's products or services.
• When considering any franchise, review the franchisor's plans for innovation and adaptation to stay relevant in a changing market.
• Your financial advisor can help you evaluate a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. The information in Item 2 indicates that the key executives have been with the company since its formation in 2014 or have extensive prior industry experience. The issues facing this franchise system appear to stem from poor performance and financial results, not from a lack of management experience.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you thoroughly vet the management team's background for relevant industry and franchising experience.
• Your attorney can help frame questions for current franchisees regarding their perception of the management team's competence and support.
• If management is new to franchising, ask if they have engaged experienced franchise consultants to guide them.

Explanation

This risk was not identified in the FDD package. Item 1 describes the franchisor's corporate structure, including its parent and affiliate companies. There is no indication that the franchisor is owned or controlled by a private equity firm.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help research the firm's track record with other franchise brands.
• It is wise to ask your attorney to review how a private equity owner might affect the franchisor's long-term strategy and support.
• In such cases, speaking with franchisees who have been with the system before and after the acquisition can provide valuable insight.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent company, Velofix Group of Companies, and other affiliates. The financial statements also show significant financial interdependence through related-party loans, indicating the parent's critical role is acknowledged. There is no evidence of an undisclosed parent.

Potential Mitigations

• If a franchisor is a new or thinly capitalized subsidiary, your attorney should confirm if parent company financial statements are required and have been provided.
• An accountant can help assess the financial health of a parent company if its guarantee is crucial for the franchisor's obligations.
• Always clarify the full corporate structure with your business advisor to understand where the ultimate control and financial backing lies.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD explicitly states, "We have no predecessor." Therefore, there are no historical issues related to a prior business entity to assess.

Potential Mitigations

• When a franchisor does have a predecessor, it's important to have your attorney review Items 1, 3, and 4 for any negative history.
• In such cases, a business advisor can help you research the predecessor's public reputation and past franchisee relations.
• Speaking with long-term franchisees who operated under a predecessor can provide your attorney with invaluable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. While the high franchisee turnover rate in Item 20 may suggest franchisee dissatisfaction, it has not manifested as reportable litigation according to this FDD.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review any litigation disclosed in Item 3 for patterns of fraud or contract disputes.
• Even without disclosed litigation, asking former franchisees about disputes is a key part of due diligence your attorney can guide.
• A business advisor can help you research public records for litigation that may not have met the threshold for FDD disclosure.