Explanation

This risk was not identified. An analysis of the franchisor's outlet data in Item 20 for the last three years shows a low rate of franchisee turnover from terminations, non-renewals, or cessations of business. A low turnover rate can suggest a stable system and general franchisee satisfaction. High turnover, conversely, can be a major red flag indicating systemic problems such as unprofitability or poor franchisor support, so its absence here is a positive indicator.

Potential Mitigations

• You should still contact a diverse group of current and former franchisees listed in Item 20 to discuss their experiences, as your business advisor would recommend.
• Your accountant can help you calculate the precise turnover rates from Item 20 data to confirm this assessment.
• Posing questions to the franchisor about the reasons for the few closures that did occur can provide additional insight, a topic to discuss with your attorney.

Explanation

The franchise system shows steady but not explosive growth over the past three years, with a net increase of two to three franchised outlets each year. This controlled pace suggests the franchisor may not be overextending its support systems. Rapid growth can sometimes strain a franchisor's ability to provide adequate training, site selection assistance, and ongoing operational support to all of its new franchisees, potentially diminishing the value of the system for everyone.

Potential Mitigations

• A conversation with your business advisor about the franchisor's growth plans and capacity to support new units is recommended.
• When speaking with franchisees, ask both new and tenured operators about the quality and responsiveness of the support they receive.
• Your accountant can review the franchisor's financial statements in Item 21 to assess if they have the resources to support continued growth.

Explanation

This risk was not identified. The franchisor, V's Barbershop Franchise, LLC (V's), has been franchising since 2007 and has a predecessor dating back to 2005. The system has over 60 units, and its management team has significant experience within the company and industry. A long operational history and experienced management team can reduce the risks associated with unproven business models, weak support systems, or lack of brand recognition that are common with new or emerging franchise systems.

Potential Mitigations

• It is still prudent to conduct thorough due diligence on the business model's long-term viability with your business advisor.
• A review of the franchisor's financial statements with your accountant will confirm its historical stability.
• Your attorney can help you formulate questions for current franchisees about their long-term experiences with the system.

Explanation

This risk was not identified. The V's Barbershop concept is described as an upscale barbershop providing traditional men's grooming services. This business model is based on established, long-standing consumer services rather than a new or fleeting trend. Businesses tied to temporary fads carry the risk that consumer interest may decline, potentially harming your long-term investment even if you are still bound by the franchise agreement's term.

Potential Mitigations

• A business advisor can help you research local market demand and competition to confirm the concept's viability in your area.
• When speaking with existing franchisees, inquire about their ability to retain customers and adapt to local market changes.
• Your financial advisor can help you assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. Item 2 shows that the key executives of V's have extensive and long-term experience with the brand and in the industry. For example, the CEO has been with the concept since 1999, and other key personnel have been with the franchisor for many years. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems.

Potential Mitigations

• It is still a good practice to ask current franchisees about their direct experiences with the management team's competence and support.
• A business advisor can help you perform background research on the key executives listed in Item 2 for additional verification.
• During your own discussions with the management team, you can assess their strategic vision and understanding of the franchise relationship.

Explanation

This risk was not identified in the FDD. Item 1 indicates the franchisor is owned by V's Barbershop Holdings, LLC, which appears to be a holding company for the founders, not a private equity firm. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, which may not be a primary concern here.

Potential Mitigations

• A discussion with your attorney to confirm the ownership structure and understand any implications of the parent company relationship is advisable.
• When speaking to other franchisees, it is useful to ask about their perception of the ownership's goals and commitment to the brand.
• Your business advisor can assist in researching the history and reputation of the parent company.

Explanation

This risk was not identified. The FDD properly discloses the parent company, V's Barbershop Holdings, LLC. However, the parent company's financials are not included, and it does not appear to guarantee the franchisor's obligations. Failure to disclose a parent company or its financials when required can obscure the true financial backing and stability of the franchisor. While not an issue of non-disclosure here, the lack of a parent guarantee means you rely solely on the franchisor's financial strength.

Potential Mitigations

• Your accountant should review the franchisor's financials in Item 21 to assess its standalone ability to meet obligations without a parent guarantee.
• Inquire with your attorney about the legal relationship between the parent and the franchisor entity.
• With your financial advisor, assess the risks of investing in a system without the explicit financial backing of a parent company.

Explanation

The FDD discloses a predecessor, V's Franchising Corporation, which sold two franchises between 2005 and 2007 before the current franchisor took over. While the history is disclosed, it represents a change in the franchising entity early in the system's life. Understanding the history of predecessors is important as it can reveal inherited issues or provide a more complete picture of the system's track record.

Potential Mitigations

• Discuss with your attorney the implications of the predecessor's history and the asset transfer to the current franchisor.
• Ask the franchisor about the transition from the predecessor and what changes were made.
• If possible, identifying and speaking with franchisees who have been with the system since the predecessor era could offer valuable insights.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that is required to be disclosed. The absence of significant litigation, particularly lawsuits initiated by franchisees alleging fraud, misrepresentation, or breach of contract, is a positive indicator. A pattern of such litigation can suggest systemic problems with the franchisor's business practices, sales process, or relationship with its franchisees.

Potential Mitigations

• It remains a good practice to conduct independent online searches for any news or legal actions involving the franchisor, as your attorney may suggest.
• During due diligence calls, you can still ask current and former franchisees about any disputes they are aware of, even if not formally disclosed.
• An attorney can help you understand the types of litigation that are required to be disclosed versus those that are not.