Explanation

This risk was not identified in the FDD Package. The data in Item 20 indicates that the franchise system is currently contracting rather than expanding rapidly. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is not necessarily a negative factor. However, a shrinking system presents its own set of risks regarding brand momentum and franchisee morale, which is addressed in the 'High Franchisee Turnover' risk.

Potential Mitigations

• Asking a business advisor to help you evaluate the franchisor's growth plans is a wise step, even if current growth is not rapid.
• Your attorney can help you understand any development obligations you might have, regardless of the system's overall pace.
• An accountant should review the franchisor's financials to see if they have adequate capital for future support and managed growth.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates that Aurelio's Is Pizza Franchise, Ltd. (Aurelio's) has been offering franchises since 1979. A long operational history suggests the business model is not new or untested and has weathered various economic cycles. The brand has significant experience in the pizzeria industry, which can be a positive factor for prospective franchisees seeking an established concept.

Potential Mitigations

• A business advisor can help you research the brand's history and reputation in its core markets.
• It is still prudent to ask your attorney to review all corporate history provided in Item 1 for any potential concerns.
• Speaking with long-term franchisees can provide insight into how the system has evolved over time.

Explanation

This risk was not identified in the FDD Package. The business concept is the operation of a pizzeria, which is a long-established and mainstream segment of the restaurant industry. There is no indication that the business is based on a fleeting trend or novelty. The stability of the underlying market for pizza is generally considered strong, though it is also highly competitive.

Potential Mitigations

• Engaging a business advisor to analyze the competitiveness of the pizza market in your specific area is recommended.
• Your accountant can help you model the financial performance needed to succeed in a competitive, non-fad industry.
• Discussing the brand's points of differentiation with current franchisees can help you understand its competitive advantages.

Explanation

This risk was not identified in the FDD Package. Item 2 details the business experience of the franchisor's key executives. The leadership team, including the President and CEO, appears to have extensive and long-term experience both within the Aurelio's system and in the broader food service industry. This depth of experience can be a significant asset in providing guidance and support to franchisees.

Potential Mitigations

• A business advisor can still be useful in researching the public reputation of the management team.
• In your calls with existing franchisees, it is worthwhile to ask about their direct experiences with the support and accessibility of the leadership team.
• Your attorney can confirm that the management disclosures in Item 2 are complete and raise no red flags.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a privately held corporation and does not disclose ownership by a private equity firm. The management information in Item 2 suggests long-term, family-related involvement. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of franchisees, so its absence can be a positive indicator.

Potential Mitigations

• Asking your attorney to review the corporate ownership structure in Item 1 is a good practice to confirm the absence of institutional investors.
• A business advisor can help you research the company to ensure there are no undisclosed majority owners that could influence its direction.
• You should inquire with the franchisor about any potential plans for a future sale of the company.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD states that Aurelio's has no parent corporation. While several affiliated companies are disclosed, they appear to be part of the overall corporate structure rather than an undisclosed parent. Proper disclosure allows you to assess the entire entity you are contracting with, and the franchisor appears to have met this requirement.

Potential Mitigations

• Your attorney should review the relationships between the franchisor and all its affiliates described in Item 1.
• An accountant can help you understand the financial impact of transactions with these affiliated companies, as detailed in Item 8 and Item 21.
• It is prudent to ask the franchisor to draw a simple organizational chart to clarify the roles of all affiliated entities.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD explicitly states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired a major part of its assets. A lack of predecessors means the history presented in the FDD, including financial performance and litigation history, is that of the current entity, which provides a clearer picture for due diligence.

Potential Mitigations

• Even without predecessors, consulting with your business advisor to research the full history of the Aurelio's brand can provide useful context.
• Your attorney can confirm that the disclosure in Item 1 regarding predecessors is complete and unambiguous.
• Discussions with long-tenured franchisees can help verify the historical narrative of the company.

Explanation

This risk was not identified in the FDD Package. Item 3 explicitly states, 'No litigation is required to be disclosed in this Item.' The absence of reported lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, is a positive indicator. It may suggest a healthier franchisor-franchisee relationship compared to systems with a history of significant legal disputes.

Potential Mitigations

• An attorney can still conduct a public records search to see if any non-material litigation exists that might offer insight.
• It is always a good practice to ask current and former franchisees about any disputes they may have had, even if they didn't result in litigation.
• Ask your business advisor to research online forums or news articles for any mention of informal franchisee disputes.