Explanation

The franchisor's growth has slowed considerably in the most recent year, so the risk of overstretched resources due to rapid expansion does not appear to be a current major concern. However, it's generally important to ensure a franchisor's support systems can keep pace with its growth, as rapid expansion can sometimes lead to diluted support for individual franchisees.

Potential Mitigations

• In discussions with current franchisees, it is useful to ask about the quality and timeliness of the support they receive from the franchisor.
• Your business advisor can help you evaluate the franchisor's current infrastructure and staffing levels to ensure they are adequate for the system's size.
• Reviewing the franchisor's strategic plans for future growth with your business advisor can provide insight into their long-term vision.

Explanation

The Yoga Six system has been franchising since 2018 and had 192 operating franchised studios at the end of 2024; therefore, it is not considered a new or unproven system. Investing in a newer system can carry higher risks, as they may lack established operational procedures, brand recognition, and a history of franchisee support and success.

Potential Mitigations

• When evaluating any franchise, it's wise to ask your business advisor to help assess the maturity and stability of the brand and its operating systems.
• Speaking with franchisees who have been in the system for varying lengths of time can provide a balanced view of its evolution.
• Your accountant should review the franchisor's financial history over several years to gauge its long-term stability.

Explanation

The franchise operates in the yoga and fitness industry, which has demonstrated long-term consumer demand and is not considered a fad. Investing in a business based on a short-term trend can be risky, as your long-term contractual obligations may outlast the public's interest in the product or service, jeopardizing your investment.

Potential Mitigations

• With any business, it is prudent to conduct independent market research with a business advisor to assess the long-term viability of the industry and concept.
• Evaluating the franchisor's commitment to innovation and adapting its services can provide insight into its ability to stay relevant over time.
• Your financial advisor can help you assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

Item 2 indicates that the franchisor's executive team has significant experience in business management, with several key leaders possessing direct experience in the franchising industry. An inexperienced management team can pose a risk, as they may lack the specific skills needed to effectively support a franchise network, develop robust systems, and guide the brand's strategic growth.

Potential Mitigations

• When assessing a franchise opportunity, it is always wise to research the backgrounds of the key management team members with your business advisor.
• Speaking with current franchisees can provide valuable feedback on the competence and responsiveness of the leadership team.
• Your attorney can help you understand how the management's experience might influence the franchisor's approach to its contractual obligations.

Explanation

The FDD clearly discloses the franchisor's parent companies, including the ultimate public parent, Xponential Fitness, Inc., and provides audited financial statements for the guarantor entity. Failing to disclose a parent company or its financials when required can obscure the true financial backing and stability of the system, creating a significant risk for a potential franchisee.

Potential Mitigations

• Your attorney should always verify that the corporate structure disclosed in Item 1 is complete and that all necessary financial statements are provided in Item 21.
• For any guarantees offered, consulting with your accountant is key to assessing the financial strength of the guaranteeing entity.
• A business advisor can help you research the reputation and track record of the parent company.

Explanation

The FDD discloses a predecessor entity that previously offered franchises for the Yoga Six system. The document appears to incorporate the relevant history, including litigation and franchisee data from the predecessor's operational period. Incomplete disclosure of a predecessor's history could hide important information about past challenges, franchisee failures, or litigation that would be material to your investment decision.

Potential Mitigations

• It is good practice to have your attorney review all disclosures related to predecessor entities in Items 1, 3, and 20.
• When speaking with long-term franchisees, asking about their experiences under any previous ownership can provide valuable context.
• A business advisor can help you research the history and reputation of any predecessor companies.