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D68/100FDD 2025

Smartstyle — Litigation & Risk

Personal Services - Beauty & Salon · FDD Items 3, 4 & 5

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Elevated Risk

16 cases disclosed in FDD Items 3 and 4.

Source: FDD Items 3–5

FDD Items 3 & 4

Litigation Metrics

Cases disclosed
16
Total from FDD Items 3 and 4
Bankruptcy (Item 4)
—
Franchisor or officer bankruptcy
Overall risk score
68 / 100
FranchiseVerdict composite
Rating
CAUTION
STRONG / MODERATE / CAUTION / AVOID

7(a) FOIA data · FY2020–present

SBA Loan Performance

Aggregated from public SBA 7(a) loan disclosures. Default rate is the share of loans that were charged off or settled for less than the full balance.

Total 7(a) loans
67
Government-backed loans issued
Default rate
2.3%
vs <3% typical · system-wide
5-yr default rate
—
Defaults
1 loans
Loans charged off or defaulted
Total loan volume
$38.5M
Avg loan size
$574K
Participating lenders
16

FDD Items 5, 6 & 17 — what you give up

Contract Risk Indicators

Mandatory arbitration
Required
Disputes resolved outside court — limits your legal options
Jury trial waiver
Waived
You give up the right to a jury trial
Non-compete
2 yrs
Post-termination restriction on similar businesses
Franchisor can compete
Yes
Franchisor can open competing locations in or near your territory
Right of first refusal
Yes
Franchisor can match any purchase offer when you try to sell
Governing law
Minnesota
State whose law governs disputes — relevant if you're not based there

What drove the 68/100 rating

Risk Score Breakdown

  1. 01MEDSystem contracting sharply with 15.4% YoY unit decline (911 units) indicating franchisee exits and market deterioration
  2. 02MEDNo disclosed average revenue or net income data (missing Item 19) prevents realistic ROI assessment and suggests franchisor may be hiding poor unit-level economics
  3. 03HIGHSignificant litigation portfolio including fraud, misrepresentation, and breach of contract allegations against franchisor, plus regulatory violations across multiple states
  4. 04MINOREscalating royalty structure (4% Year 1 vs. 5% thereafter, with $100/week minimum) compounds unit economics pressure on already-declining franchisees
  5. 05MINORUnprotected territory creates direct competition risk within same market and justifies zero territorial defensibility
  6. 06MEDHigh initial investment ($184K-$336K) paired with 5-year term offers limited exit flexibility if unit underperforms relative to contracting system

Severity inferred from FDD text — not a regulatory or legal classification

Litigation data from FDD Items 3, 4, and 5. SBA data from public 7(a) FOIA records (FY2020–present). Not legal advice — consult a franchise attorney before signing any franchise agreement.