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. Item 20 data for ZIPS Franchising, LLC shows steady but not excessively rapid growth in the number of franchised outlets over the past three years. This pace appears manageable, suggesting the support system may not be overstretched.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support infrastructure is adequate for its current and projected growth.
• In discussions with current franchisees, you should inquire about the quality and timeliness of the support they receive from the franchisor.
• Your accountant can review the franchisor's financials in Item 21 to evaluate if they are reinvesting in support systems to match growth.

Explanation

This risk was not identified. An unproven system can present higher risks due to a lack of established brand recognition and operational track record. ZIPS Franchising, LLC began offering franchises in 2006 and, as of the end of 2024, had 70 franchised outlets. This indicates a system with a significant operating history and a substantial number of franchisees, suggesting it is beyond the initial startup phase.

Potential Mitigations

• It is still wise to have your business advisor help you research the brand's history and its competitive position in the marketplace.
• Engage with a range of franchisees, both new and long-standing, to understand the evolution of the system and the support provided over time.
• An attorney can review the complete FDD package to ensure all historical information about the system and its predecessors is fully disclosed.

Explanation

This risk was not identified. A franchise concept based on a short-term trend can face failure when consumer interest fades. The garment care and dry cleaning industry, as described in Item 1, represents a long-established service sector with consistent, though evolving, consumer demand. This suggests the business model is not based on a temporary fad and has long-term market potential.

Potential Mitigations

• A business advisor can help you research the long-term trends and competitive landscape within the dry cleaning and garment care industry.
• Question the franchisor about their strategies for innovation and adaptation to changing consumer habits and environmental regulations.
• Your financial advisor should assist in evaluating the business model's resilience to economic shifts and competition.

Explanation

This risk was not identified in the FDD package. Inexperienced management can pose a risk to a franchise system's stability and support capabilities. The executive team detailed in Item 2, including the CEO and VP of Operations, possesses extensive prior experience in the franchising industry and/or the dry cleaning business specifically. This level of experience suggests the leadership team is qualified to manage the system.

Potential Mitigations

• You should still discuss the management team's accessibility and effectiveness with current franchisees.
• A business advisor can help you further research the backgrounds and track records of the key executives listed in Item 2.
• Your attorney can help formulate questions for the franchisor about their strategic vision and leadership philosophy.

Explanation

This risk was not identified in the FDD package. Private equity ownership can sometimes lead to decisions that prioritize short-term returns over the long-term health of the franchise system. According to Item 1, the franchisor, ZIPS Franchising, LLC, is a subsidiary of Value Drycleaners of America, LLC, which is in turn owned by JPBVDA, Inc. There is no indication that a private equity firm is part of the ownership structure.

Potential Mitigations

• It is always prudent to have your attorney investigate the complete ownership structure of the franchisor and any parent companies.
• A business advisor can help research the reputation and history of the ultimate parent company and its principals.
• Inquire with existing franchisees about any recent changes in ownership and the impact on the system.

Explanation

The franchisor, ZIPS Franchising, LLC, is a wholly-owned subsidiary of Value Drycleaners of America, LLC (VDA). The FDD properly includes the consolidated financial statements of VDA as Exhibit I and a Guarantee of Performance from VDA. This provides financial transparency for the parent entity, mitigating the risk of non-disclosure. However, you should still analyze these financials carefully as they show operational weaknesses.

Potential Mitigations

• A franchise accountant should carefully review the provided parent company financials and the terms of the guarantee.
• Your attorney can confirm that the guarantee is legally sound and provides meaningful protection should the franchisor fail to perform its duties.
• Discuss the relationship between the franchisor and its parent company with your business advisor to understand the operational dynamics.

Explanation

This risk was not identified in the FDD package. Incomplete disclosure of a franchisor's predecessor can hide a history of problems. Item 1 states, "We have no predecessors." It further explains that the system's founders began operating under another trademark in 1996 and converted to the ZIPS brand in 2002, and that ZIPS Franchising, LLC was formed in 2004. This history appears to be transparently disclosed.

Potential Mitigations

• Your attorney can review the corporate history provided in Item 1 to ensure it is complete and logical.
• In your discussions with long-term franchisees, you can inquire about the early history of the brand and its management.
• A business advisor can help you conduct public records searches to verify the franchisor's stated history.

Explanation

This risk was not identified in the FDD package. A pattern of litigation, especially claims of fraud or misrepresentation brought by franchisees, can be a major red flag. According to Item 3, there is "No litigation required to be disclosed in this Item." The absence of disclosed litigation suggests the franchisor does not have a history of significant legal disputes with its franchisees, regulators, or other parties.

Potential Mitigations

• Your attorney can conduct an independent search of public court records to verify the absence of significant litigation.
• You should still ask current and former franchisees about any disputes they may have had with the franchisor, even if they did not result in litigation.
• Understanding the dispute resolution process outlined in the Franchise Agreement with your attorney is crucial for assessing how conflicts are handled.