Explanation

This risk was not identified in the FDD Package. Rapid system growth can sometimes strain a franchisor's ability to provide adequate support to all franchisees. It is a factor to consider, as a support system that has not scaled with franchise sales can lead to delays in assistance, training, and resources for new and existing owners.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess if the franchisor's support infrastructure appears robust enough for its growth rate.
• It's wise to ask existing franchisees about the quality and timeliness of support they currently receive from the franchisor.
• An accountant can help review a franchisor's financials to see if they are reinvesting in support systems to match growth.

Explanation

This risk was not identified in the FDD Package. WOW LLC began franchising in 2010 and is part of the O2E Brands family, which has extensive franchise experience. Investing in a new or unproven system can carry higher risks, as the business model may not be fully tested and the support systems may be underdeveloped, which can impact a franchisee's chance of success.

Potential Mitigations

• For any new franchise system, it's crucial to have a business advisor help you vet the management team's experience in both the industry and in franchising.
• An attorney can help you negotiate more favorable terms to compensate for the higher risk associated with an unproven brand.
• You should speak with the very first franchisees of a new system to learn about their initial experiences and challenges.

Explanation

This risk was not identified in the FDD Package. The business operates in the professional painting services market, which is a long-established industry. Investing in a business based on a short-term trend or fad can be risky, as consumer interest may decline, leaving you with a potentially obsolete business and ongoing contractual obligations.

Potential Mitigations

• Your business advisor can help you conduct independent market research to assess the long-term consumer demand for any franchise's products or services.
• It is wise to evaluate a franchisor's plans for innovation and adaptation to stay relevant beyond initial trends.
• A financial advisor can help you consider the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. Item 2 shows that the management team has extensive experience in franchising, particularly within the O2E Brands system which includes other major service franchises. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an underdeveloped operational system.

Potential Mitigations

• When considering any franchise, you should always scrutinize the backgrounds of the key executives listed in Item 2.
• A business advisor can help you assess whether the management team's skills align with the needs of the franchise system.
• It is useful to ask existing franchisees about their confidence in the leadership team and the quality of support they provide.

Explanation

This risk was not identified in the FDD Package. The franchisor's ownership structure is detailed as a series of holding companies but does not indicate control by a private equity firm. Private equity ownership can be a risk if the firm prioritizes short-term returns over the long-term health of the brand and its franchisees, potentially leading to increased fees or reduced support.

Potential Mitigations

• Your business advisor can help you research the ownership structure of any franchise system you consider.
• If a franchisor is owned by a private equity firm, it is important to ask current franchisees about any changes in culture or support since the acquisition.
• An attorney can review the franchise agreement for clauses that permit easy sale of the system, which is common with PE-owned brands.

Explanation

This risk was not identified in the FDD Package. Item 1 mentions a predecessor from 2010, but there is no indication of negative history associated with it. A franchisor with a problematic predecessor history, such as prior bankruptcies or high failure rates under a previous owner, could indicate underlying issues with the business model or brand that may persist under the new ownership.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors and their history.
• If a predecessor is listed, it is prudent to conduct independent research on that entity's history and reputation.
• A business advisor can help you question the franchisor on what was changed or improved after acquiring the system from a predecessor.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses one lawsuit from 2016 where the franchisee's claims were dismissed and the franchisor prevailed on its counterclaims. This does not represent a pattern of litigation. A pattern of lawsuits against a franchisor, especially those alleging fraud or misrepresentation, can be a major red flag indicating systemic problems with sales practices or franchisee relations.

Potential Mitigations

• Your attorney should always review Item 3 of any FDD to assess the nature, volume, and outcomes of all listed litigation.
• It is wise to treat a history of multiple lawsuits from franchisees alleging similar issues, like fraud, as a significant warning sign.
• A business advisor can help you discuss any disclosed litigation with current and former franchisees to get their perspective.