Explanation

The audited financial statements for Well Infused Franchise LLC (Well Infused) reveal significant financial weakness. As of December 31, 2024, the company had a negative net worth of -$19,634 and a net loss of over $115,000 for the year. This pattern of losses and negative equity raises material concerns about the franchisor's stability and its ability to support franchisees or fulfill its obligations without being dependent on income from new franchise sales.

Potential Mitigations

• An experienced franchise accountant must thoroughly review the franchisor's audited financials, including all footnotes and cash flow statements, to assess its viability.
• It is crucial to ask the franchisor about its plans to address the negative net worth and fund future operations; a business advisor can help evaluate their response.
• Your attorney should check if any state registration requires the franchisor to post a bond or escrow initial fees due to its financial condition.

Explanation

Item 20 projects rapid growth, with plans for 12 new franchised outlets in the next fiscal year. For a new system with inexperienced management and negative net worth, as shown in Item 21, this projected expansion could strain its limited financial and support resources. This may compromise the quality and availability of training, site selection assistance, and ongoing operational support for you and other early franchisees, increasing your risk.

Potential Mitigations

• In discussions with the franchisor, inquire specifically about their staffing and infrastructure plans to support this projected growth; a business advisor can help you evaluate their plans.
• Your attorney should seek contractual commitments for specific levels and response times for support services.
• An accountant can help assess if the franchisor's financials support its ability to build out a robust support system for many new units.

Explanation

The franchisor is a new, unproven system, as explicitly stated in the FDD's "Special Risks" section. They were formed in July 2022 and only began offering franchises in mid-2024, with zero franchised outlets operating to date. This lack of a track record means the business model's viability for franchisees, the effectiveness of the support systems, and the brand's market acceptance are all untested, representing a significantly higher risk for early investors.

Potential Mitigations

• A business advisor should help you conduct extensive due diligence on the viability of the underlying business concept and the affiliate-owned locations.
• Your attorney should try to negotiate more franchisee-favorable terms to compensate for the higher risk of joining an unproven system.
• An accountant's help in creating conservative financial models is crucial, as there is no franchisee performance data available.

Explanation

The franchisor entity, Well Infused, is new and has no experience operating franchises. While its executives have some franchising experience with a different chiropractic concept since 2016, their experience with franchising this specific wellness model is non-existent. This lack of direct experience can lead to underdeveloped support systems, unproven operational manuals, and strategic errors that could negatively impact your business.

Potential Mitigations

• A business advisor can help you scrutinize the management team's specific track record with their other franchise system, "The Specific Chiropractic Centers."
• When speaking with the franchisor, ask detailed questions about how they have prepared to support franchisees in this new, more complex business model.
• Your attorney should confirm that the franchisor has hired experienced franchise support staff or consultants to compensate for their limited history with this brand.

Explanation

The FDD discloses two parent companies in Item 1 but fails to provide their financial statements in Item 21. Given that the franchisor has a negative net worth and is a new entity, the financial stability of its parents is a material fact for assessing the overall health of the system. Without their financials, you cannot determine if they have the resources or commitment to support the franchisor if it continues to incur losses, creating significant risk.

Potential Mitigations

• Your attorney should inquire why the parent companies' financial statements are not included and whether they will provide a guarantee of the franchisor's performance.
• A business advisor can help you research the parent companies to assess their financial strength and business activities independently.
• Given the franchisor's financial weakness, your accountant should evaluate the risk of proceeding without a clear picture of the parent companies' financial backing.