Explanation

This specific risk was not identified in the FDD package. The franchisee turnover rates, calculated from the data in Item 20, appear to be low for the past three years. However, high turnover can be a major red flag in other systems, often signaling franchisee dissatisfaction, lack of profitability, or systemic problems. Continuous monitoring of these figures is important.

Potential Mitigations

• Discussing the low turnover rate with current franchisees to understand their satisfaction levels can provide valuable context; your business advisor can help.
• It is still advisable to ask your attorney to review Item 20 for any concerning footnotes or trends you may have missed.
• An accountant can help you calculate and benchmark the turnover rates presented in any FDD against industry averages.

Explanation

This risk was not identified. The FDD indicates BBDOTQ has been franchising for over a decade and has grown to a considerable size with over 200 operating outlets. For other opportunities, investing in a new system can carry higher risks, as the business model, brand recognition, and support structures may not be fully established or tested in the marketplace.

Potential Mitigations

• When evaluating a newer system, your business advisor should help you conduct deep due diligence on the founders' industry and franchising experience.
• Consulting an accountant is essential to scrutinize the capitalization and financial stability of any new franchisor.
• For unproven systems, an attorney may be able to negotiate more favorable terms to offset the increased risk.

Explanation

The business concept, a quick-service chicken restaurant, is well-established and does not appear to be based on a short-term trend. For other franchises, a concept tied to a fleeting fad can be a significant risk, as consumer interest may decline, potentially harming long-term viability even though your contractual obligations remain.

Potential Mitigations

• A business advisor can help assess whether a different franchise concept has long-term market demand or is a novelty with limited appeal.
• It is wise to evaluate a franchisor's plans for innovation and adaptation to stay relevant beyond initial trends.
• Your financial advisor can help consider the sustainability of any business model and its resilience to economic downturns.

Explanation

This risk was not identified. Item 2 and Exhibit I indicate that the executive team and Area Representatives have several years of experience within the bb.q system or related industries. For other franchise opportunities, inexperienced management can be a significant risk, as it may lead to poor strategic decisions, underdeveloped systems, and inadequate support for franchisees, regardless of how much you pay in fees.

Potential Mitigations

• Thoroughly vetting the management team's background and relevant experience is a key task for your business advisor.
• Speaking with existing franchisees about the quality of support and management's competence is crucial due diligence.
• If a franchisor is new to franchising, an attorney can help assess if they have engaged experienced consultants to guide them.

Explanation

This risk does not appear to be present, as Item 1 indicates the franchisor is a subsidiary of a larger, industry-related parent company, not a private equity firm. In other cases, PE ownership can introduce risks, as their focus may be on short-term investor returns through cost-cutting or rapid sales, potentially at the expense of long-term brand health and franchisee support.

Potential Mitigations

• When evaluating a PE-owned franchise, it is wise to research the firm's track record with other franchise systems with your business advisor.
• Your attorney should analyze the franchisor's right to sell the system and the implications for you if it is sold.
• Discussing any changes in fees or support since a PE acquisition with current franchisees provides valuable insight.

Explanation

This risk was not identified, as Item 1 indicates BBDOTQ has no predecessors. In other franchise systems, a history of predecessors can be important. If a franchisor acquired the system from another company, it's crucial to understand the predecessor's history, including any litigation, bankruptcy, or high franchisee turnover, as these issues could be inherited by the new franchisor.

Potential Mitigations

• Your attorney should always carefully review the predecessor information disclosed in Items 1, 3, and 4 of any FDD.
• A business advisor can help you research the track record of any predecessor companies, looking for news or franchisee complaints.
• It is beneficial to ask long-term franchisees about their experiences under any previous ownership.

Explanation

This risk was not identified. Item 3 discloses no litigation required to be reported. In other situations, a pattern of lawsuits filed by franchisees alleging fraud, misrepresentation, or breach of contract can be a major red flag. It may indicate systemic problems with the franchisor's sales process, business model, or franchisee relationships. A high volume of franchisor-initiated lawsuits can also suggest an overly aggressive or litigious culture.

Potential Mitigations

• Your attorney should always carefully review the details of all lawsuits disclosed in Item 3 of any FDD.
• Consulting with an attorney to conduct independent legal research on disclosed cases can provide valuable context.
• Treating a pattern of fraud claims or an unusually high volume of litigation as a major warning sign is a prudent step for any investor.