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How much does Bad Ass Coffee of Hawaii cost?
Initial Investment Range
$526,100 to $992,400
Franchise Fee
$134,400
Royal Aloha Franchise Company, LLC is offering franchises for the operation of retail coffee shops operated under the service mark "BAD ASS COFFEE OF HAWAII" and featuring coffee, espresso, and tea beverages, food and coffee beans, to customers in a nostalgic Hawaiian atmosphere.
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Bad Ass Coffee of Hawaii March 31, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 22, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The FDD explicitly warns that the franchisor's financial condition “calls into question the Franchisor's financial ability to provide services and support to you.” Audited financials in Exhibit G confirm this, showing significant, recurring net losses and negative cash flow from operations for the past three years. The company's ability to operate appears dependent on capital infusions from its parent, posing a substantial risk to its long-term stability and ability to support you.
Potential Mitigations
- A franchise accountant must conduct a thorough review of the franchisor's financial statements, including all footnotes and cash flow analysis.
- Discuss the implications of the franchisor's recurring losses and reliance on parent funding with your financial advisor to assess long-term viability.
- Your attorney should inquire about any financial assurance measures, such as performance bonds, the franchisor has in place.
High Franchisee Turnover
Medium Risk
Explanation
Item 20 data for the last three years shows a total of four franchised outlets have been non-renewed or ceased operations. While not extreme, any pattern of units leaving the system can be a sign of underlying issues with profitability, support, or the business model. This data warrants further investigation to understand the specific reasons for these departures.
Potential Mitigations
- It is critical to contact former franchisees listed in Exhibit F to understand their reasons for leaving the system.
- Your accountant can help analyze the churn rate revealed in Item 20 and compare it against available industry benchmarks.
- Ask the franchisor directly for their explanation of why these specific units ceased operations or were not renewed.
Rapid System Growth
High Risk
Explanation
The franchisor explicitly discloses as a special risk that a “significant number” of franchisees have not yet opened their outlets. Item 20 Table 5 quantifies this, showing 26 franchise agreements are signed for outlets that are not yet open, compared to only 32 operating franchises. This high ratio of unopened to open units may indicate systemic issues, such as difficulties in site selection, financing, or a support system unable to keep up with sales.
Potential Mitigations
- A business advisor should help you investigate the reasons for this significant backlog by speaking with franchisees who are still in the opening process.
- Before signing, your attorney should seek to understand the franchisor's capacity to support this large number of new openings simultaneously.
- Have your accountant help you create a conservative timeline and budget, anticipating potential delays based on this disclosed risk.
New/Unproven Franchise System
High Risk
Explanation
Royal Aloha Franchise Company, LLC (RAF) has been the franchisor since mid-2019, when it acquired the assets of a predecessor system that began in 1998. While the brand has history, the current ownership and management team are relatively new to running this specific system. The FDD also discloses recurring losses. This combination of new ownership and financial weakness presents risks associated with an unproven management track record for this brand and potential instability.
Potential Mitigations
- With your business advisor, conduct thorough due diligence on the current management team's experience in both the coffee industry and in managing a franchise system.
- Speaking with franchisees who have been with the system both before and after the 2019 ownership change can provide valuable insight.
- Your accountant should carefully review the provided financials to assess the stability and strategy of the current ownership.
Possible Fad Business
Low Risk
Explanation
This specific risk was not identified in the FDD Package. A fad business is one tied to a fleeting trend, which can risk long-term viability after public interest declines. Since franchise agreements are long-term commitments, you could be left with obligations for a business that is no longer in demand.
Potential Mitigations
- Engaging a business advisor to research the long-term market trends and consumer demand for the products and services is a prudent step.
- You should assess whether the business model has the flexibility to adapt and evolve if the current market trends change.
- Consider the brand's staying power and its resilience to economic shifts in your discussions with a financial advisor.
Inexperienced Management
Medium Risk
Explanation
The management team detailed in Item 2 appears to have extensive experience in the restaurant and beverage industries. However, most of the key executives have only been with this specific franchisor, Royal Aloha Franchise Company, LLC (RAF), since 2019 or more recently. While their industry experience is a positive factor, their collective tenure managing this particular franchise system is relatively short.
Potential Mitigations
- It is important to speak with current franchisees about their direct experiences with the management team's support and strategic direction.
- A business advisor can help you evaluate how the executive team's prior experience translates to the specific needs of this coffee franchise.
- You should ask the franchisor about the stability of the management team and their long-term vision for the brand.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD Package. Private equity ownership can introduce risks, as their goal is typically to grow and sell the company within a defined period. This can sometimes lead to decisions that prioritize short-term returns, such as cutting franchisee support or increasing fees, over the long-term health of the brand. An attorney can help you understand the implications if the franchise system is sold.
Potential Mitigations
- It is always wise to ask your attorney to review any clauses in the Franchise Agreement related to the franchisor's right to sell or assign the system.
- If private equity were involved, a business advisor could help research the firm’s reputation and track record with other franchise brands.
- Discussing the long-term ownership strategy with a financial advisor is a recommended step in any franchise purchase.
Non-Disclosure of Parent Company
High Risk
Explanation
The franchisor, Royal Aloha Franchise Company, LLC (RAF), is a subsidiary of its parent company, Royal Aloha Coffee Company, LLC. The FDD's financial statements are consolidated and include the parent, which appears appropriate. However, the financials reveal that the franchisor has recurring losses and relies on capital contributions from its parent to fund operations. This dependency makes the parent's financial health and continued willingness to provide support critical to your success.
Potential Mitigations
- Your accountant must review the consolidated financial statements, paying close attention to the parent company's ability to continue funding the franchisor's operations.
- An attorney should review any guarantees or formal support agreements provided by the parent to the franchisor entity.
- Discuss the nature of the parent-subsidiary relationship and long-term funding commitments with your financial advisor.
Predecessor History Issues
Medium Risk
Explanation
The current franchisor acquired the system's assets from a predecessor in 2019. Item 3 discloses two material lawsuits involving the predecessor franchisor. While the current franchisor was not a party, this history is part of the brand's legacy and could indicate historical issues within the system. Understanding this past context is important for assessing the overall health of the franchise opportunity.
Potential Mitigations
- Your attorney should carefully review the details of the predecessor litigation disclosed in Item 3 to understand its nature and resolution.
- It may be beneficial to speak with long-term franchisees who operated under the predecessor to gain historical perspective.
- A business advisor can help you assess what changes the current management has made to address any issues inherited from the predecessor.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD Package. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about a franchisor's practices and system health. It is crucial to review Item 3 for any such history. Even a high number of lawsuits initiated by the franchisor against franchisees can suggest an overly aggressive or litigious relationship.
Potential Mitigations
- A thorough review of Item 3 with your attorney is crucial to identify and understand any disclosed litigation history.
- If litigation is present, obtaining independent information on the cases with the help of your attorney can provide additional context.
- Discussing the franchisor's relationship with its franchisees with a significant number of current and former operators is a key part of due diligence.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems