Explanation

This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support. If a franchisor expands too quickly without scaling its support infrastructure, new franchisees may find that training, site selection assistance, and operational guidance are insufficient, potentially affecting their success.

Potential Mitigations

• Your business advisor can help you question a franchisor about its plans for scaling support infrastructure to match unit growth.
• In any franchise opportunity, it's wise to interview a broad range of existing franchisees about the quality and responsiveness of franchisor support.
• An accountant should always review the franchisor's financials in Item 21 to assess if they have the resources to support their stated growth.

Explanation

This risk was not identified in the FDD Package, as Ben & Jerry's is a well-established brand. For new franchise systems, a lack of a long track record, an unproven business model, or inexperienced management can increase the risk of system-wide failure, inadequate support, and minimal brand recognition, posing a greater threat to a franchisee's investment.

Potential Mitigations

• When evaluating any new franchise system, conducting extensive due diligence on the founders' and management's experience is crucial; a business advisor can help.
• Speaking to the very first franchisees in a new system provides invaluable insight into the early challenges and the franchisor's responsiveness.
• An accountant's review of a new franchisor's capitalization is vital to ensure it has the financial runway to support its initial growth phase.

Explanation

This risk was not identified in the FDD Package, as ice cream is a long-standing consumer product. A fad-based business is tied to a fleeting trend and lacks evidence of sustained consumer demand. Investing in such a franchise is risky because once public interest wanes, the business may fail, even though your contractual obligations to the franchisor continue.

Potential Mitigations

• With any trendy concept, it is important to have a business advisor help you assess the long-term market demand for the product or service.
• Evaluating a franchisor's plans for innovation, adaptation, and staying relevant beyond the initial trend is a key step your financial advisor can assist with.
• Consult your accountant to analyze the business model's resilience to economic downturns and shifting consumer tastes.

Explanation

This risk was not identified in the FDD Package, as Item 2 shows management has extensive experience. Inexperienced management can pose a significant risk if the franchisor's leadership lacks a track record in franchising or the specific industry. This can lead to poor strategic decisions, underdeveloped support systems, and a higher risk of failure for franchisees who rely on their guidance.

Potential Mitigations

• For any franchise, a business advisor can help you thoroughly vet the management team's background and relevant experience.
• It is always wise to speak with existing franchisees about the quality of support and the competence of the franchisor's management team.
• If a franchisor is new to franchising, your attorney can help you inquire if they have engaged experienced franchise consultants to guide them.

Explanation

This risk was not identified in the FDD Package, as the parent company relationships are disclosed. If a franchisor is a thinly capitalized subsidiary, the parent's financial statements may be required for a full risk assessment. Failure to disclose a parent or provide its financials when required can mask risks related to the parent's stability or the true financial backing of the franchise system.

Potential Mitigations

• Your attorney can help verify a company's corporate structure if you suspect an undisclosed controlling parent.
• If a parent company provides guarantees or is a key supplier, an accountant should ensure the parent's financials are provided and reviewed if required by law.
• Always have your accountant ensure that any provided parent company financials meet standard accounting and audit requirements.

Explanation

Ben & Jerry's Homemade, Inc. is listed as the Predecessor and Parent. The disclosure appears straightforward. A risk could arise if a franchisor's predecessor had a history of issues like litigation or high franchisee failure rates that were not fully disclosed. This could prevent a prospective franchisee from understanding the system's historical challenges.

Potential Mitigations

• It is always prudent for your attorney to carefully review predecessor information in Items 1, 3, and 4 of any FDD.
• If a system was acquired from a predecessor, a business advisor can help you research the predecessor's track record independently.
• Speaking with long-term franchisees about their experience under any predecessors can provide valuable historical context.