Explanation

This risk was not identified in the FDD package. The franchise system is not experiencing rapid growth; in fact, Item 20 data shows a significant contraction in the number of franchised units over the last few years. Rapid growth can strain a franchisor's ability to provide adequate support to its franchisees.

Potential Mitigations

• When evaluating any franchise, it's wise to have an accountant review system growth trends in Item 20 to check for stability.
• A business advisor can help assess whether a franchisor's support infrastructure is keeping pace with its growth.
• Your attorney can review the franchisor's obligations for support to see if they are robust enough for a growing system.

Explanation

This risk was not identified in the FDD package. The business of selling prepared sushi from counters in retail locations is a well-established food service concept and is not considered a short-term fad. The risk of a fad business is that consumer interest might decline rapidly, leaving you with an obsolete business but an ongoing franchise contract.

Potential Mitigations

• Before investing, you should always research the long-term market trends for any product or service with a business advisor.
• It is prudent to have your accountant help you assess the business model's resilience to economic shifts.
• Engaging a marketing expert could provide insight into the sustainability of consumer demand for the franchise's offerings.

Explanation

This risk was not identified in the FDD package. The management team biographies in Item 2 show that the key executives have several years of operational experience within the Bento Sushi system and its affiliated companies. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• When reviewing any FDD, it is important to have your business advisor help you analyze the management team's experience in both the specific industry and in franchising.
• Contacting current franchisees is a good way to gauge the competence and responsiveness of the leadership team.
• An attorney can help you understand the implications if the management team changes frequently.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the ultimate parent company is Zensho Holdings Co., Ltd., a large, publicly-traded Japanese corporation in the food industry, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand.

Potential Mitigations

• If a franchisor is owned by a private equity firm, engaging a business advisor to research the firm's history with other franchise brands is recommended.
• Your attorney should review contract terms related to the franchisor's right to sell the system.
• An accountant can analyze financial statements for signs of cost-cutting in franchisee support services.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a complex but detailed corporate structure, including all parent companies up to the ultimate owner. Failure to disclose a parent company, especially one that guarantees the franchisor's performance or is a key supplier, can hide significant financial or operational risks from a prospective franchisee.

Potential Mitigations

• Your attorney should always verify that the franchisor's corporate structure is clearly disclosed in Item 1.
• If a parent company's financial stability is critical, an accountant should confirm if their financials are required and have been provided.
• A business advisor can help investigate the reputation and stability of any influential parent companies.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that BSFI has no predecessors that require disclosure. A franchisor with predecessors could have a history of litigation, bankruptcy, or franchisee failures that may not be immediately apparent without careful review of Items 1, 3, 4, and 20.

Potential Mitigations

• It is important for your attorney to carefully review Item 1 of any FDD for information about predecessors.
• If predecessors exist, a business advisor can help you research their history and reputation.
• Speaking with long-term franchisees can provide insight into the system's performance under previous ownership.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, especially lawsuits brought by franchisees alleging fraud or misrepresentation, can be a major red flag about the health and integrity of a franchise system.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• Engaging your attorney to conduct an independent search for litigation beyond what is disclosed can provide a more complete picture.
• A high number of lawsuits initiated by the franchisor against franchisees might indicate an overly aggressive culture, a point to discuss with your business advisor.