Explanation

Based on the data in Item 20, high franchisee turnover was not identified. The system is very new, with rapid growth and no reported terminations or non-renewals in the most recent year. Generally, high turnover can signal systemic problems, such as unprofitability or poor franchisor support. Continuing to monitor this data in future FDDs is important for a young system.

Potential Mitigations

• It is prudent to ask current franchisees about their satisfaction and future intentions during your due diligence calls.
• Your business advisor can help you analyze Item 20 data in future FDDs to watch for emerging trends in turnover.
• Discussing the typical reasons for franchisee exits with your attorney can provide valuable context for future analysis.

Explanation

This risk was not identified in the FDD package. Generally, a franchise concept tied to a fleeting trend without a plan for long-term market relevance can be risky. If consumer interest wanes, your business could suffer even if you are contractually bound for many years. Assessing the long-term sustainability of consumer demand for the core service is a key piece of due diligence.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term demand for the franchise's products or services.
• Reviewing the franchisor's history of innovation and plans for future development in Item 11 is a prudent step.
• Consulting with your financial advisor about the business's resilience to economic shifts and changing consumer tastes is advisable.

Explanation

This risk was not identified in the FDD package, as the management team described in Item 2 appears to have prior relevant industry and franchising experience. In general, a franchisor team lacking direct experience in managing a franchise system or in the specific industry can pose a risk. It may lead to underdeveloped support systems, poor strategic decisions, and inadequate assistance for franchisees.

Potential Mitigations

• A thorough review of the backgrounds of the key management personnel listed in Item 2 with your business advisor is a crucial step.
• It is wise to ask current franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you verify the professional histories of the executive team if any concerns arise.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. Generally, PE ownership can introduce risks, as their typical focus on short-term returns might lead to decisions that benefit investors over the long-term health of the franchise system, such as cutting franchisee support, increasing fees, or forcing a quick sale of the entire system.

Potential Mitigations

• A business advisor can help you research the ownership structure of the franchisor for any private equity involvement.
• It is wise to ask existing franchisees if there have been any recent changes in ownership or management philosophy.
• Your attorney should review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold.

Explanation

Item 1 discloses that FPB DNA has a predecessor, DNA Pro Cleaning Franchising LLC. The document provides some history on this entity and its affiliate, DNA Fresh Carpet Care, LLC, which operated the 'Predecessor Outlet'. While disclosed, the complex relationship and rebranding creates a history that requires careful evaluation to understand the system's true lineage and performance track record.

Potential Mitigations

• Your attorney should carefully review the information about the predecessor and affiliate entities in Items 1, 3, 4, and 19.
• It's beneficial to ask the franchisor for more details about the transition from the predecessor to the current entity.
• Speaking with any available franchisees who may have experience with the predecessor system could offer valuable insights.

Explanation

Item 3 states that no litigation is required to be disclosed. This indicates the franchisor, its predecessors, and management have not been involved in the types of legal actions that require disclosure. While positive, this does not guarantee a dispute-free future. Franchisee satisfaction remains a key due diligence point.

Potential Mitigations

• It is still prudent to ask current and former franchisees about their experiences and whether they have had any significant disputes.
• Your attorney can conduct public record searches to confirm the absence of litigation history if you have specific concerns.
• A business advisor can help you evaluate other indicators of system health, such as franchisee turnover in Item 20.