Explanation

This specific risk was not identified in the FDD package. Based on the data in Item 20, the system has not experienced a high rate of franchisee terminations, non-renewals, or other cessations of business in the last three years. This can be a positive indicator of system health and franchisee satisfaction, as high turnover often points to underlying problems such as a lack of profitability or poor franchisor support.

Potential Mitigations

• Even with low reported turnover, you should contact a sample of current and former franchisees from the list in Exhibit F to discuss their experiences.
• Your business advisor can help you formulate questions for these franchisees regarding their profitability and satisfaction with the system.
• Discussing the reasons for any past terminations or transfers with the franchisor can provide additional insight.

Explanation

The franchise system is experiencing steady growth, expanding from 12 to 16 franchised outlets in the most recent year. While growth is often positive, you should verify if the franchisor's support infrastructure is scaling adequately to service this larger network. Rapid growth without a corresponding increase in support staff and resources can sometimes lead to a decline in the quality of assistance provided to each franchisee.

Potential Mitigations

• In discussions with current franchisees, ask specifically if they have noticed any changes in the quality or timeliness of franchisor support as the system has grown.
• Posing questions to the franchisor about their plans for scaling their support team and systems is a prudent step your business advisor can help with.
• Your accountant can review the financial statements to assess if the franchisor is reinvesting sufficiently in infrastructure to support its growth.

Explanation

This risk was not identified. Anchor Bar began franchising in 2011 and has an established operating history with multiple franchisees. The underlying restaurant concept dates back to 1935. This longer history provides a track record that can be evaluated, which is generally less risky than investing in a brand-new, unproven franchise system with no operating history or established brand recognition.

Potential Mitigations

• When speaking with franchisees, it is useful to ask about the evolution of the business model and the support systems over time.
• A discussion with your business advisor can help you analyze how the brand has remained relevant in a competitive market.
• Your attorney should still review the complete history as disclosed in Item 1 to ensure there are no other concerns.

Explanation

This risk does not appear to be present. The business concept, centered on buffalo wings and casual dining, is a well-established segment of the restaurant industry rather than a niche trend. The original Anchor Bar restaurant has been in operation since 1935, indicating long-term consumer demand for its core products. This longevity suggests the business is less likely to be a short-term fad.

Potential Mitigations

• Assessing the long-term market demand for casual dining and wing-focused restaurants in your specific area is a wise step to take with your business advisor.
• It is beneficial to evaluate the franchisor's plans for innovation and menu development to ensure the concept remains competitive.
• A financial advisor can help you consider the sustainability of the business model against potential economic downturns.

Explanation

This risk does not appear to be present. Item 2 discloses that the key executives, such as Mark Dempsey and Marcella Wright, have extensive, long-term experience with the Anchor Bar brand and its affiliates, with some holding various positions for many years. This deep experience within the specific brand and restaurant industry can be a significant benefit for new franchisees.

Potential Mitigations

• During your discussions with the franchisor, you can ask about the management team's specific experience in supporting a franchise network.
• Speaking with current franchisees can provide valuable feedback on the quality of guidance they receive from the management team.
• Your business advisor can help you evaluate the collective experience of the management team as presented in Item 2.

Explanation

This risk was not identified in the FDD. Item 1 does not indicate that Anchor Bar is owned by a private equity firm. The company appears to be privately held by its management. This means decisions are less likely to be driven by short-term investor return timelines that can sometimes conflict with the long-term health of the franchise system.

Potential Mitigations

• It is always prudent to ask the franchisor about any potential plans for a future sale of the company.
• Your attorney can help you understand the 'Assignment' clause in the Franchise Agreement to know your rights if the company is sold in the future.
• A business advisor can help research the ownership structure of the franchisor for any additional insight.

Explanation

This risk was not identified. The FDD discloses its affiliates, such as Anchor Bar Distributing Company, LLC, in Item 1, and the financial statements in Item 21 appear to be for the franchisor entity itself. There is no indication of a parent company whose financials would be required for a complete risk assessment but have been omitted.

Potential Mitigations

• Your attorney can verify the corporate structure to confirm there are no undisclosed parent entities that should have been disclosed.
• An accountant should confirm that the provided financial statements belong to the actual franchisor entity granting you the rights.
• You should always ensure you understand the role of all affiliated companies mentioned in Item 1.

Explanation

This risk was not identified. Item 1 of the FDD states that Anchor Bar does not have any predecessors. This simplifies due diligence, as there is no need to investigate the historical performance, litigation history, or bankruptcy record of a prior entity that operated the franchise system.

Potential Mitigations

• Your attorney should confirm the accuracy of the 'no predecessors' statement during their review of the corporate history in Item 1.
• It is still beneficial to speak with the longest-tenured franchisees to understand the full history of the franchise system from their perspective.
• A business advisor can assist in researching the brand's history to ensure no prior franchise systems under a different name have been overlooked.

Explanation

This risk was not identified. Item 3 states that there is no litigation that requires disclosure. This is a positive sign, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can indicate serious systemic problems within a franchise.

Potential Mitigations

• Although no litigation is disclosed, you should still ask current and former franchisees about their relationship with the franchisor and if they are aware of any disputes.
• It can be beneficial to have your attorney conduct an independent search for litigation involving the franchisor as part of due diligence.
• Your business advisor can help you understand that a clean litigation record is a good, but not guaranteed, indicator of a healthy franchisor-franchisee relationship.