Explanation

This risk was not identified in the FDD package. The audited financial statements in Item 21 show a history of profitability and a strong balance sheet. A financially stable franchisor is generally better positioned to provide ongoing support, invest in technology, and grow the brand, which can benefit all franchisees.

Potential Mitigations

• An experienced franchise accountant should still conduct a thorough review of the franchisor's financial statements, including all footnotes and the auditor's report.
• Ask your accountant to analyze the franchisor's sources of income to ensure it relies on royalties from successful franchisees rather than primarily on new franchise fees.
• Discuss the financial health of the system with existing franchisees as part of your due diligence, guided by your business advisor.

Explanation

This risk was not identified. Item 20 data shows a mature and stable system size over the last three years, not the kind of explosive growth that might strain a franchisor's support systems. A measured growth rate can be a positive indicator, suggesting the franchisor is focused on franchisee success rather than rapid expansion.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor's growth strategy and its capacity to support both existing and new franchisees.
• In discussions with current franchisees, you should inquire about the quality and timeliness of the support they receive from the corporate office.
• It is beneficial to have your accountant review the franchisor's financial statements for evidence of continued investment in support infrastructure.

Explanation

This risk was not identified. The FDD indicates that YESCO Franchising LLC (YESCO) began offering franchises in 2011 and is affiliated with a parent company, Young Electric Sign Company, that has been in business since 1920. The system appears to be mature and well-established, with significant operational history.

Potential Mitigations

• Your business advisor should still help you vet the experience of the current management team to ensure continuity and competence.
• In your discussions with existing franchisees, asking about the evolution of the system and the support provided over the years can provide valuable insight.
• Consulting with your attorney to understand the relationship between the franchisor and its long-established parent company is advisable.

Explanation

This risk was not identified. The business of sign and lighting service and maintenance is a long-standing, essential B2B service rather than a concept based on a recent or fleeting consumer trend. This suggests a more stable, long-term market demand for the services you would be offering.

Potential Mitigations

• Even in an established industry, it is wise to have your business advisor help you research local market demand and competition.
• Discuss the franchisor's plans for adapting to new technologies, like LED lighting and digital signage, to ensure long-term relevance.
• Your accountant can help you model the financial sustainability of the business based on providing essential, recurring services rather than trendy products.

Explanation

This risk was not identified. Item 2 of the FDD indicates that the key executives have extensive, long-term experience with the franchisor and its affiliates, in some cases for over a decade in relevant roles. This suggests a stable and experienced leadership team is in place.

Potential Mitigations

• A conversation with your business advisor can help you evaluate how the management team's experience aligns with your own goals.
• When speaking with franchisees, it is useful to ask about their direct interactions with and confidence in the corporate leadership team.
• Your attorney can review Item 2 to confirm the professional backgrounds of the key personnel responsible for managing the franchise system.

Explanation

This risk was not identified. According to Item 1, the franchisor's managing member is Young Electric Sign Company, a long-standing family and corporate-run business, not a private equity firm. This typically suggests a focus on the long-term health of the brand rather than a short-term investment timeline.

Potential Mitigations

• It is still prudent to have your attorney review the ownership structure in Item 1 to fully understand who controls the franchisor.
• Your business advisor can help you research the history and reputation of the parent company, Young Electric Sign Company.
• Ask current franchisees about their view of the franchisor's long-term vision and commitment to the franchise system.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Young Electric Sign Company, and its affiliates. Item 21 provides audited, consolidated financial statements that include the franchisor's Canadian subsidiary, giving a comprehensive view of the entire franchising entity's financial position. The disclosure appears to be complete.

Potential Mitigations

• An accountant's review of the consolidated financials in Item 21 is important to understand the performance of the overall entity.
• Your attorney should confirm that all necessary affiliate and parent disclosures required by franchise law have been made.
• During discussions with the franchisor, you might ask about the operational relationship between the parent company and the franchising entity.

Explanation

This risk was not identified. The FDD does not mention any predecessors. Item 1 states, 'We have no predecessors.' This indicates that the operating history presented in the document is that of the current franchisor entity, providing a clear lineage of the business.

Potential Mitigations

• Your attorney should verify the corporate history in Item 1 to ensure there are no unmentioned predecessors from which the system was acquired.
• It is still good practice to ask early franchisees about the history of the system since they joined.
• A business advisor can help you research the background of the parent company to understand the origins of the business model.

Explanation

This risk was not identified. Item 3 discloses one prior lawsuit involving a former Canadian franchisee that was initiated by the franchisor and ultimately settled. This single, settled case does not appear to represent a pattern of litigation against franchisees or claims of fraud against the franchisor.

Potential Mitigations

• It is recommended to have your attorney review the details of any disclosed litigation in Item 3 to understand its nature and resolution.
• You might ask the franchisor for their perspective on any disclosed litigation during your due diligence calls.
• Conducting a public records search, with the help of your attorney, for any other litigation involving the franchisor can be a prudent step.