Explanation

This risk was not identified in the FDD package. Item 20 data does not show a high rate of franchisee terminations, non-renewals, or other cessations. Low turnover can indicate a stable system and franchisee satisfaction. However, it's always important to understand the reasons for any departures, even if the number is small, as it provides insight into the franchisee-franchisor relationship and potential challenges you might face.

Potential Mitigations

• Speaking with former franchisees listed in Item 20, if any, can provide valuable, firsthand insight into why they left the system.
• A business advisor can help you analyze the multi-year trends in the Item 20 tables to gauge overall system health.
• Asking your attorney about any patterns in franchisee departures, even if small, is a prudent step during due diligence.

Explanation

This risk was not identified in the FDD. The business of providing STEAM, coding, and robotics education to children is part of a well-established and growing sector of the economy. This is generally not considered a fad, which would be a business based on a short-lived trend. A sustainable business model is crucial for long-term success, as your contractual obligations continue regardless of market trends.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for the services offered.
• It is still wise to ask the franchisor about their plans for innovation and curriculum development to stay current.
• Your accountant can help model the financial viability of the business based on sustained demand.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the franchisor's management team has direct experience operating the affiliate business since 2015 and has been involved with the franchise since its inception in 2018. Experienced leadership is important as it can significantly impact the quality of training, support, and strategic direction provided to franchisees.

Potential Mitigations

• It is always a good practice to research the background of the key executives mentioned in Item 2 with the help of a business advisor.
• Speaking with current franchisees can provide insight into their confidence in the management team's leadership.
• Your attorney can help you understand the implications of management's experience as disclosed in the FDD.

Explanation

This risk was not identified in the FDD. Item 1 and Item 2 indicate the franchisor is founder-led, with no disclosure of ownership by a private equity firm. This is important because ownership structure can influence the franchisor's priorities, which may affect long-term brand health versus short-term financial returns.

Potential Mitigations

• Your attorney can help you confirm the ownership structure of the franchisor as disclosed in Item 1.
• A business advisor can explain the different implications of founder-led versus private equity-owned franchise systems.
• It is always prudent to ask current franchisees about any recent or anticipated changes in ownership.

Explanation

This risk was not identified in the FDD. The franchisor does not appear to have a parent company. The FDD must disclose any parent companies and, in certain circumstances, provide their financial statements. This transparency is crucial for you to assess the full scope of the organization you are joining and the ultimate source of its financial and operational backing.

Potential Mitigations

• Your attorney should confirm that all required entities, including parents and affiliates, are properly disclosed in Item 1.
• An accountant can help you determine if the financials of any related companies should have been included for a complete picture.
• Always ask the franchisor to clarify its full corporate structure if anything seems unclear in the disclosures.

Explanation

This risk was not identified in the FDD. Item 1 discloses a predecessor entity, but there are no associated negative disclosures, such as litigation or bankruptcy in Items 3 and 4. A franchisor's predecessor history is important because it can reveal inherited issues, past system struggles, or a pattern of problems that might continue under the current ownership.

Potential Mitigations

• It is still a good practice to ask long-tenured franchisees about their experiences under any previous ownership.
• Your attorney should carefully review all disclosures related to predecessor entities in Items 1, 3, and 4.
• A business advisor can help you research the public history of any predecessor companies for a more complete background.

Explanation

This risk was not identified in the FDD. Item 3 states there is no litigation that requires disclosure. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, can be a major red flag about a franchise system's health and integrity. The absence of such litigation is a positive indicator.

Potential Mitigations

• It's a good practice to ask current and former franchisees about their experiences and if they are aware of any disputes.
• Your attorney can conduct a public records search to see if any litigation exists that was not required to be disclosed.
• A business advisor can help you understand what a typical level of litigation might be for a system of this size and age.