Explanation

This risk was not identified. The audited financial statements for Ben's Soft Pretzels Franchising Corporation (Ben’s Pretzels) show a history of profitability, positive and growing stockholder equity, and a strong balance sheet. Revenue is primarily driven by royalties rather than initial fees, indicating a healthy, mature system. An independent auditor provided a clean opinion with no 'going concern' issues noted, suggesting the franchisor is financially stable and capable of supporting its franchisees.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements, including all footnotes, to confirm the financial health of the franchisor and its affiliates.
• It is wise to ask your accountant to analyze the franchisor’s cash flow and debt levels to assess their long-term ability to invest in the brand and support franchisees.
• Discuss the franchisor's financial strategy and plans for future system investment with your business advisor.

Explanation

This risk was not identified in the FDD. Item 20 data shows moderate and stable growth in recent years, with a slight contraction in the most recent year. The franchisor’s financial statements appear robust enough to support its existing size and growth rate. This suggests the franchisor is not overextending its resources, which is crucial for maintaining adequate franchisee support, training, and quality control across the system.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's support infrastructure, as described in Item 11, is adequate for the current system size.
• In discussions with current franchisees, you should inquire about the quality and responsiveness of the support they receive from the franchisor.
• Confirming the franchisor's strategic growth plans during discussions can provide insight into their capacity for future support.

Explanation

This risk was not identified. Ben’s Pretzels began franchising in 2013 and has over 75 franchised locations, as shown in Items 1 and 20. The system has more than a decade of franchising history and management has significant experience with the brand. An unproven system carries higher risks related to underdeveloped support and brand recognition, which does not appear to be the case here.

Potential Mitigations

• It is still valuable to speak with early franchisees in the system to understand how the brand and support have evolved over time.
• Your business advisor can help you assess the brand's maturity and market position in your specific region.
• A thorough review of the franchisor's history in Item 1 with your attorney is always a prudent step.

Explanation

This risk was not identified in the FDD. The business model is centered on soft pretzels, a long-established and popular snack food item, not a recent or passing trend. The franchisor's operational history dating back to 2008 suggests sustained consumer demand. A fad business poses a significant risk of declining sales once consumer interest wanes, which seems unlikely for this type of core food product.

Potential Mitigations

• A business advisor can help you research the long-term consumer trends for this food category in your local market.
• Evaluate the company's plans for product innovation and menu development to ensure they can adapt to changing consumer tastes.
• It is beneficial to discuss the stability and longevity of the business model with established franchisees.

Explanation

This risk was not identified. Item 2 shows that the key executives have been with the franchise system since its inception in 2012 and have been involved with affiliate-owned stores since 2008. This indicates more than a decade of direct experience with the brand and its operations. Inexperienced management can be a major liability for a franchise system, but that does not appear to be a concern here.

Potential Mitigations

• Engaging a business advisor to research the professional reputation of the management team can provide additional confidence.
• During discussions with current franchisees, you should inquire about their perception of management's competence and leadership.
• Your attorney can review the management history in Item 2 to confirm their tenure and roles.

Explanation

This risk was not identified in the FDD. Item 1, which details the franchisor's corporate structure, does not indicate ownership by a private equity firm. The ownership appears to be held by the system's founders. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the brand and its franchisees, which does not appear to be a relevant risk in this case.

Potential Mitigations

• Your attorney can conduct a corporate search to confirm the ownership structure of the franchisor.
• Understanding the franchisor's long-term vision for the brand can be accomplished by speaking with management.
• A business advisor can help you assess if the franchisor's strategy aligns with the interests of individual franchisees.

Explanation

This risk was not identified. The FDD states in Item 1 that Ben’s Pretzels does not have a parent company. The disclosure document outlines a structure of affiliated companies, but not a parent-subsidiary relationship that would require separate financial disclosures from a parent entity. All relevant financial information for the franchising entity appears to be included.

Potential Mitigations

• Having your accountant review the relationships between the franchisor and its affiliates as described in Items 1 and 8 is advisable for clarity.
• Your attorney can help you understand the legal and financial separation between the various affiliated entities.
• You should ask the franchisor to explain the roles and responsibilities of each affiliated company.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the business concept, which is not applicable here. Therefore, there is no hidden history of business failures or litigation associated with a prior entity.

Potential Mitigations

• Your attorney can verify the corporate history of the franchising entity to confirm the absence of predecessors.
• Speaking with long-term franchisees about the history of the brand is a good due diligence step.
• A business advisor can help you research the origins of the brand for a complete picture.

Explanation

This risk was not identified. Item 3 of the FDD, which must disclose certain types of litigation, states that there is no litigation required to be disclosed. A clean litigation history is a positive indicator, suggesting the franchisor maintains good relationships with its franchisees and has not been the subject of regulatory enforcement actions. A pattern of litigation, especially for fraud, can be a major red flag.

Potential Mitigations

• It is wise to have your attorney perform an independent search of public court records to confirm the absence of significant litigation.
• During conversations with current and former franchisees, you can inquire about any past or pending disputes they are aware of within the system.
• Your business advisor can search for news articles or online discussions that might mention franchisee disputes.