Explanation

This risk was not identified in the FDD package. The franchise system is very new, with the first franchised unit opening in 2023. Item 20 tables show no terminations, non-renewals, or other cessations. High franchisee turnover is a critical red flag in established systems, often indicating problems with profitability, support, or the business model itself. A pattern of franchisees leaving the system can signal significant underlying issues that could affect your own success.

Potential Mitigations

• Understanding the reasons for franchisee exits in any system is a crucial part of due diligence; your business advisor can help guide this research.
• A discussion with your attorney about the legal definitions of termination and non-renewal can provide valuable context when reviewing Item 20.
• Your accountant can help calculate turnover rates from Item 20 data to compare against industry benchmarks.

Explanation

This risk was not identified in the FDD package. The business model, centered on quick-serve burgers and fries, is part of a well-established and enduring segment of the restaurant industry. A 'fad' business is one based on a short-lived trend, which creates a high risk that customer demand will disappear before you can achieve a return on your investment, even if you are still bound by the long-term franchise agreement.

Potential Mitigations

• Your business advisor can help you research market trends to distinguish between sustainable business models and temporary fads.
• When evaluating any franchise, consider its adaptability and long-term consumer appeal with your financial advisor.
• It is prudent to ask your attorney to review how the franchise agreement handles required products, in case the core offering needs to evolve.

Explanation

This risk was not identified in the FDD package. Item 2 discloses that the executive team has extensive and relevant experience in the restaurant and franchising industries, with backgrounds at major brands like Hissho Sushi, Krispy Kreme, Little Caesars, and Dunkin' Brands. Inexperienced management can be a major risk, as it may lead to weak operational systems, inadequate franchisee support, and poor strategic decisions that can jeopardize the entire franchise network.

Potential Mitigations

• It is always wise to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Discussing the management team's accessibility and quality of support with current franchisees is a key due diligence step.
• An attorney can help you understand the franchisor's contractual obligations for support, regardless of management's experience level.

Explanation

This risk was not identified in the FDD package. ICBB states in Item 1 that it has not acquired the business from a predecessor and has no predecessor history to disclose. When a franchisor has a predecessor, it is important to review that entity's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate inherited problems with the brand or its operating model that might affect your business.

Potential Mitigations

• An attorney can help you verify the franchisor's statements about its history by reviewing corporate records.
• Even without a formal predecessor, a business advisor can help you research the business history of the key individuals involved in the franchise.
• If a predecessor were disclosed, speaking with franchisees who operated under that entity would be a crucial due diligence step.

Explanation

This risk was not identified in the FDD package. Item 3 states that neither ICBB nor its Master Licensor has any litigation that requires disclosure. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud, misrepresentation, or breach of contract, is a major red flag. It can signal systemic problems with the franchisor's sales process, business model, or its relationship with its franchisees.

Potential Mitigations

• Your attorney can conduct independent searches for litigation beyond what is disclosed in Item 3 to ensure a comprehensive view.
• Always ask current and former franchisees about their relationship with the franchisor and if they are aware of any disputes.
• A business advisor can help you evaluate the nature and frequency of any disclosed litigation in the context of the system's size and age.