We Rock The Spectrum
Initial Investment Range
$98,850.30 to $361,291.30
Franchise Fee
$40,560 to $86,810
We Rock The Spectrum Kid’s Gyms provide a safe, nurturing, and fun environment that includes unique equipment to assist children with neurological growth, sensory-based swings and toys, an indoor and mobile play structure, motor play toys and equipment, and arts and crafts and physical fitness programs to foster learning, exploration and safe sensory experiences.
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We Rock The Spectrum April 18, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
We Rock the Spectrum, LLC's (WRTS) 2024 audited financials reveal potential instability. While showing net income, the company had a significant negative operating cash flow of over $293,000. Additionally, franchise fee revenue ($2.0M) is substantially higher than royalty revenue ($722k), suggesting a heavy reliance on new franchise sales for income rather than the ongoing success of existing franchisees. This could impact the franchisor's ability to provide long-term support if sales slow.
Potential Mitigations
- A franchise accountant should meticulously review all financial statements, including the cash flow statement and footnotes, to assess the franchisor's long-term viability.
- Discuss the reliance on franchise fees versus royalties with your financial advisor to understand the sustainability of the business model.
- It is important that your attorney asks the franchisor to explain its negative operating cash flow and its plans for achieving positive cash flow from operations.
High Franchisee Turnover
High Risk
Explanation
The franchisor directly warns of a risk from a 'significant number' of unopened franchises. Item 20 data confirms this, showing 49 signed agreements for gyms not yet open, which is more than 50% of the 96 currently operating. Additionally, in 2022, 8 units 'Ceased Operations,' representing a high 16.3% churn rate for that year. This combination suggests potential systemic challenges with opening and operating a franchise successfully.
Potential Mitigations
- You should contact a significant number of franchisees from the provided lists, especially those who have recently opened or are still unopened, to discuss their experiences.
- A business advisor can help you analyze the turnover and unopened unit data to assess the underlying causes and potential risks to your investment.
- Your franchise attorney should question the franchisor about the high number of unopened units and the specific reasons for the 2022 closures.
Rapid System Growth
High Risk
Explanation
Item 20 data indicates the system nearly doubled in size in three years, growing from 50 to 97 total outlets. This rapid expansion, combined with the large backlog of 49 unopened franchises and negative operating cash flow disclosed in Item 21, raises concerns. Such fast growth may strain the franchisor's resources, potentially leading to inadequate training, site selection assistance, and ongoing support for all franchisees.
Potential Mitigations
- Asking the franchisor about its plans to scale its support staff and infrastructure to match unit growth is a task for your business advisor.
- It would be wise to question a broad range of existing franchisees about their perception of the quality and timeliness of the franchisor's support.
- Your accountant should review the franchisor's financial statements to assess if they have the capital resources required to support this continued rapid expansion.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified in the FDD package. We Rock the Spectrum, LLC began franchising in 2013 and has nearly 100 operating units, indicating it is an established system. For new franchises, a lack of a proven track record, minimal brand recognition, and underdeveloped support systems can pose significant risks to a franchisee's success. It is important to evaluate a franchisor's history and experience before investing.
Potential Mitigations
- A thorough review of a franchisor's history and years in business with your business advisor is a critical due diligence step.
- Assessing brand recognition and system maturity by speaking with existing franchisees provides valuable insight.
- Your accountant can help evaluate whether a newer system is adequately capitalized to support its franchisees long-term.
Possible Fad Business
Medium Risk
Explanation
The business model, a children's gym with a focus on sensory experiences for children with special needs, operates in a niche market. While this is a growing and important service, its long-term, mass-market demand compared to more traditional businesses could be a consideration. You should assess whether the business has enduring appeal beyond current trends to ensure long-term viability, as your contractual obligations will continue regardless of shifts in market interest.
Potential Mitigations
- Engage a business advisor to conduct independent research on the long-term market demand and competitive landscape for specialized children's gyms.
- Question the franchisor about its plans for innovation and adaptation to ensure the concept remains relevant over the 10-year contract term.
- Evaluating the business's resilience to economic downturns with your financial advisor is a prudent step.
Inexperienced Management
Low Risk
Explanation
This risk was not identified. Item 2 shows that the key executives, including the Founder/CEO, have over a decade of experience operating this specific franchise system. Franchises with inexperienced management can pose a risk, as they may lack the expertise to provide effective support, manage growth, or navigate industry challenges. This can lead to underdeveloped operational systems and poor strategic decisions that negatively impact franchisees.
Potential Mitigations
- A business advisor can help you scrutinize the résumés of the franchisor's key management team provided in Item 2.
- Discussing the quality and experience of the management team with current and former franchisees is a crucial due diligence step.
- Your attorney can help you understand the difference between industry experience and actual franchise management experience.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package, as Item 1 does not indicate that the franchisor is owned by a private equity firm. When a franchisor is owned by a PE firm, there can be a risk that management decisions prioritize short-term investor returns over the long-term health of the franchisees. This can sometimes manifest as reduced support, increased fees, or a focus on rapid franchise sales.
Potential Mitigations
- Researching the track record of any parent private equity firm with other franchise systems is a wise step for your business advisor.
- Your attorney should review the Franchise Agreement for any terms that give the franchisor broad rights to sell the system without your consent.
- Discussing any changes in system direction since a PE acquisition with current franchisees can provide valuable context.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified, as Item 1 indicates We Rock The Spectrum, LLC is the primary entity and does not mention a parent company. When a franchisor is a subsidiary of a larger parent, it's important that the parent's financial condition is also understood, especially if the parent provides guarantees or is a key supplier. Without the parent's financial statements, it can be difficult to assess the true financial backing and stability of the franchise system.
Potential Mitigations
- Your attorney can help verify the franchisor's corporate structure to confirm the absence of a controlling parent entity.
- If a parent company exists and provides guarantees, your accountant should review their financial statements for stability.
- Understanding the full corporate structure helps your business advisor assess where ultimate control and financial responsibility lie.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. When a franchise system has been operated by a predecessor, it is important to understand that entity's history. Past issues, such as litigation, bankruptcy, or high franchisee turnover under a predecessor, could indicate underlying problems that may have been inherited by the current franchisor and could affect your business in the future.
Potential Mitigations
- Your attorney should always carefully review Item 1 for any mention of predecessor companies.
- If a predecessor exists, researching its public records and history with your business advisor is a key part of due diligence.
- Speaking with franchisees who operated under the predecessor can provide invaluable historical context.
Pattern of Litigation
Medium Risk
Explanation
Item 3 discloses two past litigation cases. The first involved the franchisor suing a franchisee for de-identifying and opening a competing business, which was settled. The second involved a franchisee suing the franchisor over a settlement agreement, which was ultimately resolved for a small amount. While not a definitive pattern of fraud claims, the existence of these disputes warrants attention and suggests a potential for conflict within the system.
Potential Mitigations
- A franchise attorney should review the details of the litigation disclosed in Item 3 to understand the nature and outcomes of the disputes.
- Discussing the litigation with your business advisor can help you assess if it indicates isolated incidents or systemic problems.
- You may ask the franchisor for its perspective on these past legal matters.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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