Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system is shrinking in the United States, not expanding rapidly. Rapid growth can strain a franchisor's ability to provide adequate support to new and existing franchisees, but that does not appear to be the primary risk here. Instead, the risk is system decline.

Potential Mitigations

• Your business advisor can help you analyze the pace of growth or decline in any franchise system you consider.
• In any franchise, you should speak with existing franchisees about whether they feel the franchisor's support systems are keeping pace with system size.
• An accountant can review the franchisor's financials to assess if they have the resources to support their current system size and any planned growth.

Explanation

This risk was not identified. World Gym is a well-established brand with a history dating back to 1976 and has been franchising since 2009. While there is new ownership as of late 2024, the franchise system itself is mature and not unproven. The risks associated with this franchise appear to stem from other factors, such as financial performance and franchisee turnover, rather than a lack of brand history.

Potential Mitigations

• When evaluating any franchise, especially a newer one, consulting with a business advisor to assess the viability of the business model is crucial.
• You should always ask your attorney to scrutinize the experience of the management team listed in Item 2.
• An accountant can help analyze the financial stability of a new system, which may lack the extensive financial history of a mature brand.

Explanation

This risk was not identified in the FDD. The business of operating a fitness gym is a well-established and long-standing industry, not one based on a short-term trend or fad. While the fitness industry evolves with new trends, the fundamental concept of a gym has sustained consumer demand. The risk here is not the business type, but the specific execution and health of this particular franchise system.

Potential Mitigations

• For any business concept, it's wise to have a business advisor help you research its long-term market viability.
• Always question a franchisor on their plans for innovation and adaptation to stay relevant in their industry.
• An accountant can help you model the financial resilience of a business concept to potential economic shifts.

Explanation

This risk does not appear to be present. The FDD discloses in Item 1 that the parent company is World Fitness Services, Ltd. While the parent company's financials are not included, the franchisor itself provides audited financial statements. The relationship seems to be clearly disclosed, mitigating the risk of a hidden, unstable parent entity.

Potential Mitigations

• For any franchise, your attorney should verify the corporate structure and identify all parent and affiliate companies.
• If a parent company guarantees the franchisor's obligations, an accountant should review the parent's financials for stability.
• It is wise to ask the franchisor to clarify the nature and extent of the parent company's involvement in the franchise's operations.

Explanation

This risk was not identified in the FDD package. While there was a change of ownership, creating a predecessor and successor entity for financial reporting, Item 1 does not disclose a history of predecessors in a way that suggests hidden negative history. The primary risks appear to be with the current and immediate past performance of the franchisor, which are disclosed.

Potential Mitigations

• When analyzing any FDD, ask your attorney to carefully examine Item 1 for any mention of predecessors.
• If a predecessor is listed, it is prudent to investigate its history, including any past litigation or bankruptcy proceedings, with your attorney's help.
• Speaking with long-term franchisees can provide valuable insight into the system's history under previous ownership.

Explanation

This risk was not identified in the FDD. Item 3, which requires the disclosure of certain types of litigation, states that there is no litigation that requires disclosure in the document. The absence of a disclosed pattern of litigation against the franchisor by franchisees is a positive sign, although it does not eliminate other significant risks present in the FDD.

Potential Mitigations

• A franchise attorney can conduct independent searches for litigation that may not have met the technical disclosure requirements of Item 3.
• Always ask current and former franchisees about their experiences with disputes and if they are aware of litigation within the system.
• Your attorney can help you understand the types of disputes that are common in a particular franchise system.