Explanation

This risk was not identified as Elysian is a new franchisor and had no franchised outlets operating, terminated, or transferred as of year-end 2023, according to Item 20. High turnover is a significant red flag in established systems as it can indicate franchisee dissatisfaction or lack of profitability. Since no data exists here, this specific risk is not present, but the system's newness is a related risk.

Potential Mitigations

• As the system grows, a business advisor can help you monitor franchisee turnover rates through future FDDs.
• An attorney can help you understand your rights and obligations if the system struggles in its early stages.
• It's wise to build a strong network with fellow franchisees as they join the system to share experiences.

Explanation

The Beef-a-Roo concept, focused on Midwest fare like roast beef sandwiches and burgers, has a long history through its affiliate-owned locations. However, its expansion as a franchise model is new. The risk that the concept is a niche or regional taste that may not travel well to all markets is a consideration. Your success may depend heavily on local consumer acceptance of this specific type of quick-service restaurant, which you should evaluate for your particular area.

Potential Mitigations

• A business advisor can help you conduct independent market research in your specific area to gauge consumer demand for this style of food.
• Analyzing the long-term success of the affiliate-owned locations and the reasons for their durability should be part of your due diligence.
• It is prudent to assess the adaptability of the menu and concept to changing consumer tastes with a business advisor.

Explanation

This risk was not identified in the FDD. The franchisor properly discloses its parent companies in Item 1. Failing to disclose a parent entity, especially one that guarantees obligations or controls the franchisor, can hide significant risks related to the true financial backing and stability of the franchise system, preventing a prospective franchisee from making a fully informed decision.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and identify all relevant parent and affiliate companies.
• An accountant should review the financial statements of any parent company that provides a guarantee for the franchisor's performance.
• Understanding the relationships between the franchisor, its parents, and its affiliates is a key part of due diligence a business advisor can assist with.

Explanation

Item 1 discloses that an affiliate, Beef-A-Roo OpCo, LLC, is the successor to the original Beef-A-Roo, Inc. by acquiring its equity. The FDD appears to properly disclose this history. In some cases, a franchisor might downplay a predecessor's negative history, such as litigation or high franchisee failure rates, which would obscure inherited challenges. While the disclosure appears adequate here, understanding this lineage is important for context.

Potential Mitigations

• Your attorney should carefully review the predecessor information in Items 1, 3, and 4 of the FDD.
• If possible, researching the history of the original brand before its acquisition can provide helpful context, which a business advisor can assist with.
• When franchisees become available, it is wise to ask long-term employees of the affiliate-owned stores about the transition.

Explanation

This risk was not identified. Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly franchisee-initiated claims of fraud or misrepresentation against the franchisor, is a major red flag indicating potential systemic problems. Similarly, a high volume of franchisor-initiated lawsuits against franchisees can suggest an overly aggressive or litigious culture. The absence of such disclosures is a positive indicator, though not a guarantee of a dispute-free future.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor or its principals that may not have met the threshold for disclosure.
• Building a good relationship with the franchisor and other franchisees can help in resolving disputes before they escalate to litigation.
• Maintaining meticulous records of all communications and compliance with the agreement is a crucial practice your business advisor can help you establish.