Explanation

This specific risk was not identified, as the Item 20 tables show no terminations or non-renewals. However, this data has limited meaning because the franchise system is extremely new, with only two operating units as of the FDD's issuance date. High turnover is a significant risk in more established systems as it can indicate franchisee dissatisfaction or lack of profitability.

Potential Mitigations

• Your business advisor should help you understand that with a new system, past turnover data is not a reliable predictor of future stability.
• It is important to ask the franchisor about their franchisee selection and support processes to gauge how they plan to ensure franchisee success and retention.
• Consulting with the very first franchisees, with questions prepared by your attorney, can provide early insights into the franchisor-franchisee relationship.

Explanation

This risk was not identified in the FDD package. The business concept is a burrito bar, which is a well-established and durable category within the fast-casual restaurant industry. A fad business, based on a short-lived trend, would present a much higher risk of declining consumer interest, potentially leaving you with a worthless business long before your franchise agreement expires.

Potential Mitigations

• Your business advisor can help you research long-term consumer trends to confirm the sustainability of any business concept you consider.
• Analyzing a company's commitment to research and development in Item 11 can provide insight into its plans to evolve beyond any initial trends.
• An accountant can help you model the financial risks associated with a business that has highly cyclical or trend-dependent revenue streams.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive prior franchising and industry experience with the large and established Canadian affiliate, BarBurrito Restaurants, Inc. While the U.S. entity is new, the management team itself appears to be experienced in operating this specific type of business and franchise system, which reduces the risk of operational errors common with inexperienced leadership.

Potential Mitigations

• It is still prudent to have a business advisor help you research the specific track records of the management team members listed in Item 2.
• Asking existing franchisees about their direct experiences with the management team's competence and support is a valuable due diligence step.
• Your attorney can help you verify that the experience described in the FDD is relevant to the U.S. market and this specific franchise offering.

Explanation

This risk was not identified in the FDD package. A review of Item 1 and the franchisor's corporate structure does not indicate ownership by a private equity firm. When a franchise is PE-owned, there can be a risk that decisions are driven by short-term investor return goals, which may not align with the long-term health of franchisees.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor to identify potential private equity involvement.
• If PE ownership is found, your attorney should review the Franchise Agreement for clauses that might be affected, such as assignment rights or fee structures.
• Contacting franchisees of other brands owned by the same PE firm can provide insight into their operational style and priorities.

Explanation

This risk does not appear to be present. Item 1 clearly discloses the existence and role of its Canadian affiliate, BarBurrito Restaurants, Inc., and explains the relationship. There is no indication of a hidden parent company or that required financial statements from a guaranteeing parent have been withheld.

Potential Mitigations

• Your accountant should always verify whether a franchisor is a subsidiary and if the parent company's financials should have been included under franchise rules.
• If a parent company exists and guarantees the franchisor's performance, your attorney should ensure that the guarantee is a formal exhibit to the FDD.
• Understanding the full corporate structure with the help of a business advisor is crucial for assessing the true financial backing of the franchise.

Explanation

This risk was not identified, as Item 1 of the FDD states that the franchisor does not have any predecessors. It acquired rights from a Canadian affiliate but did not acquire the business of a prior franchisor of the same system. In cases where predecessors exist, a failure to disclose their history could hide past system problems, litigation, or franchisee failures.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors or past business acquisitions.
• If a predecessor is identified, a business advisor can help you conduct independent research on its historical performance and reputation.
• Asking long-term franchisees about their experience under any previous ownership is a critical step when predecessors are involved.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." The absence of significant litigation, especially claims of fraud or breach of contract from other franchisees, is a positive indicator. A pattern of such litigation would be a major red flag about the franchisor's practices and system health.

Potential Mitigations

• It's wise to have your attorney perform an independent search for litigation involving the franchisor, as Item 3 disclosures have specific reporting thresholds.
• Asking current and former franchisees about any informal disputes they have had can provide valuable context beyond formal litigation.
• A business advisor can help you analyze the nature of any disclosed litigation to understand its potential impact on the franchise system.