Explanation

This risk was not identified. The audited financial statements for Ziebart Corporation (Ziebart) in Exhibit G show a consistently profitable company with a strong balance sheet, including positive and growing net income and stockholder's equity over the past three years. This financial strength suggests Ziebart has the resources to support its obligations to franchisees.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements, including all footnotes, to form an independent opinion on the franchisor's health.
• It is wise to have your accountant assess the franchisor's reliance on product sales to franchisees versus royalties for its income streams.
• During due diligence calls, a business advisor can help you frame questions to other franchisees about their perception of the franchisor's financial commitment to the system.

Explanation

This risk was not identified. The data in Item 20's tables indicates a very stable franchise system. Over the past three years, there have been zero terminations, zero non-renewals, and zero franchisor re-acquisitions. The handful of outlets that 'Ceased Operations for Other Reasons' represents a very low turnover rate for a system of this size, suggesting a generally stable and satisfied franchisee base.

Potential Mitigations

• Your business advisor should help you analyze the Item 20 data over the full three-year period to confirm the low turnover rates.
• You should still contact current and former franchisees from the lists in Exhibits H and I to discuss their experiences and reasons for leaving.
• In discussions with the franchisor, you could ask about the circumstances surrounding the few outlets that ceased operations for other reasons.

Explanation

This risk was not identified. The data provided in Item 20 does not indicate overly rapid system growth. The net change in franchised outlets has been modest and stable over the last three years, suggesting growth is being managed at a sustainable pace. This reduces the risk that support resources might be stretched too thin.

Potential Mitigations

• When speaking with franchisees, it is still a good idea to ask about the quality and timeliness of support they receive from the corporate office.
• Your business advisor can help you ask the franchisor about their future growth plans and how they intend to scale support.
• A review of the franchisor's financials with your accountant can confirm they are investing in support infrastructure to match any growth.

Explanation

This risk was not identified. Ziebart is a very mature and established franchise system, having commenced franchise operations in 1962. The company has a long operational history, a well-known brand in its sector, and a large number of existing franchisees, which provides a significant track record for you to evaluate.

Potential Mitigations

• A business advisor can help you assess the advantages and potential disadvantages of joining a very mature system versus a newer one.
• It is important to discuss with long-tenured franchisees how the system has evolved and adapted over time.
• Your attorney can review the history provided in Item 1 to ensure there are no hidden issues with predecessors or brand acquisitions.

Explanation

This risk was not identified. Ziebart operates in the automotive appearance and protection services industry, offering services like rustproofing, detailing, and window tinting. This is an established market with a long history of consumer demand, not a business model based on a new or fleeting trend, which suggests long-term market viability.

Potential Mitigations

• You should still conduct your own local market research with a business advisor to assess the long-term demand for these specific services in your area.
• In discussions with the franchisor, inquire about their research and development plans for new products and services to stay competitive.
• Speaking with current franchisees can provide insight into how consumer demand has changed over the years and how the brand has adapted.

Explanation

This risk was not identified. The executive team profiled in Item 2 demonstrates significant and long-term experience with the Ziebart brand and in the automotive services industry. Many key executives have been with the company for several years, some for decades, indicating a stable and knowledgeable leadership team.

Potential Mitigations

• A business advisor can help you research the backgrounds of the key executives to confirm their industry and franchising experience.
• During validation calls, you should ask current franchisees about their opinion of the franchisor's management team and their leadership.
• At any discovery day or meeting with the franchisor, be prepared to ask management about their long-term vision for the company.

Explanation

This risk was not identified. The FDD indicates that Ziebart Corporation is a wholly owned subsidiary of Ziebart International Corporation. There is no disclosure of ownership by a private equity firm. The ownership structure appears to be corporate and long-standing rather than financially motivated by short-term investment horizons.

Potential Mitigations

• It is still prudent to have your attorney confirm the corporate structure and ownership details disclosed in Item 1.
• In discussions with the franchisor, you could ask about any long-term plans for changes in ownership.
• A business advisor can help you understand the pros and cons of different franchisor ownership structures.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, Ziebart International Corporation. The provided financial statements are for the franchisor entity, Ziebart Corporation, which is appropriate as it is the entity you contract with. The franchisor entity itself appears well-capitalized and profitable, reducing the risk of relying on an undisclosed or financially weak parent.

Potential Mitigations

• Your attorney should review the parent-subsidiary relationship described in Item 1 and the Master Franchise Agreement mentioned in the financial statement footnotes.
• An accountant should analyze the financial statements to confirm the subsidiary's ability to stand on its own and fulfill its obligations.
• It is a good practice to ask the franchisor to clarify the specific support roles of the parent versus the franchisor entity.

Explanation

This risk was not identified. The FDD states that Ziebart does not have any predecessors. While it mentions the acquisition of another system, ARTECH, this occurred in 1997, well outside the typical disclosure period for predecessor history. Therefore, there are no recent predecessor issues that would pose a risk.

Potential Mitigations

• Your attorney can confirm the information in Item 1 regarding predecessors.
• It is still beneficial to ask long-tenured franchisees if they have any knowledge of the company's history prior to its current structure.
• A business advisor can help you understand why a franchisor's predecessor history is an important factor in due diligence.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. The absence of reported lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, is a positive indicator for the health and integrity of the franchise system.

Potential Mitigations

• Your attorney can conduct an independent public records search to verify if there is any material litigation that may not have been disclosed.
• Asking current and former franchisees about their experiences and whether they are aware of any significant legal disputes is a crucial due diligence step.
• Understanding what types of litigation must be disclosed under franchise law can be explained by your franchise attorney.