Explanation

This risk was not identified in the FDD package. The tables in Item 20 do not show any franchisee terminations, non-renewals, or cessations of business for the past three years. A high rate of turnover can be a significant warning sign, often indicating systemic problems with profitability, support, or the business model. Therefore, its absence here is a positive indicator, though the system is still young.

Potential Mitigations

• In a more mature system, it is crucial for an accountant to analyze the turnover tables in Item 20 to calculate the actual churn rate.
• Speaking with former franchisees is a key due diligence step that your attorney can help you prepare for.
• A business advisor can help you compare a system's turnover rate against industry averages to gauge its relative health.

Explanation

This risk was not identified in the FDD package. The waxing and personal care industry is well-established and has demonstrated sustained consumer demand. The business does not appear to be based on a short-term trend or fad. However, it's always important to assess the long-term viability of any business concept, as market preferences can shift over time, and a franchise agreement is a long-term commitment.

Potential Mitigations

• A business advisor can help you research the specific market segment to assess long-term consumer demand and competitive pressures.
• Evaluating the franchisor's plans for innovation and service development is a key step in gauging its ability to adapt to market changes.
• Your financial advisor should help you consider the business model's resilience to economic shifts and downturns.

Explanation

This risk was not identified in the FDD package. The executive team described in Item 2 appears to have relevant experience. For instance, the President and COO, Michael Abramson, has prior executive experience with other franchise systems like Xponential Fitness. While any management team presents some level of risk, this team does not appear to be inexperienced in franchising or the relevant industry.

Potential Mitigations

• A business advisor can help you further vet the backgrounds of the key management personnel to confirm their track record.
• Discussing the quality of management's guidance and support with current franchisees is an essential part of due diligence.
• Your attorney can help you understand the roles and responsibilities of the key executives as outlined in the franchise documents.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. Franchisees in PE-owned systems can sometimes face pressures related to short-term profit goals, which may not align with their own long-term success. The absence of this ownership structure can be a positive factor, suggesting a potentially longer-term focus from leadership.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise system to identify potential private equity involvement.
• If a system is PE-owned, your attorney should help you understand the potential implications by speaking with other franchisees.
• Reviewing the private equity firm's history with other franchise brands is a crucial due diligence step, which a business advisor can facilitate.

Explanation

This risk was not identified in the FDD package. The franchisor, The Waxxpot Group Franchise, LLC, is disclosed in Item 1 as a wholly-owned subsidiary of The Waxxpot Group Holdings, LLC. However, the financials provided in Item 21 are for the franchising entity itself, as required, and there is no indication that the parent company's financials are required but missing. The relationship is disclosed.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1.
• If a parent company guarantees the franchisor's obligations, an accountant must review the parent's financials for stability.
• Understanding the full corporate structure and any inter-company dependencies is a task for which your attorney and accountant can provide guidance.

Explanation

This risk was not identified in the FDD package. Item 1 states the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets. When predecessors exist, it's important to investigate their history for issues like litigation, bankruptcy, or high franchisee failure rates, as these could indicate inherited problems with the system.

Potential Mitigations

• Your attorney should carefully review Item 1 of any FDD to identify any disclosed predecessors.
• If predecessors exist, a business advisor can help you conduct independent research into their operational and legal history.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable context.

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 significant litigation against the franchisor, particularly from other franchisees alleging fraud or misrepresentation, is a positive sign. A pattern of such lawsuits can be a major red flag indicating systemic problems within a franchise.

Potential Mitigations

• Your attorney should always carefully review Item 3 and advise on the significance of any disclosed litigation.
• Even with no disclosed litigation, your attorney may suggest searching public court records for any other legal actions involving the franchisor.
• Discussing any past or pending disputes with current and former franchisees can provide insights beyond the formal disclosures.