Explanation

Based on the data in Item 20, high franchisee turnover was not identified, as this is a new franchise system with very few operating units. Generally, high turnover can be a red flag, potentially indicating systemic problems such as a lack of profitability, franchisee dissatisfaction, or inadequate support. It is a critical metric to watch as a system matures.

Potential Mitigations

• Engaging a business advisor to monitor future Item 20 disclosures for this system can provide insight into its long-term health.
• Your attorney can help you frame questions for the first few franchisees about their experience and satisfaction with the system.
• An accountant can assist in analyzing the reasons for any future franchisee departures should they occur.

Explanation

This risk was not identified in the FDD. Item 20 data shows the system is in its initial growth phase and has not experienced the rapid expansion that can sometimes strain a franchisor's support resources. For any franchise, it is important that the franchisor's support infrastructure, such as training and field support staff, grows in tandem with the number of franchised units to maintain quality across the system.

Potential Mitigations

• A business advisor can help you evaluate a franchisor's plans for scaling its support systems to match future unit growth.
• It is wise to ask existing franchisees about their perception of the quality and responsiveness of franchisor support with help from your attorney.
• Your accountant can review the franchisor's financial statements to assess if they have the resources allocated to support their growth plans.

Explanation

This risk was not identified. The business model, focused on burgers and fries, operates in a well-established segment of the restaurant industry, not one based on a short-term trend. For any franchise, it is important to assess the long-term consumer demand for its core products or services to ensure the business has lasting market appeal beyond initial novelty or specific trends.

Potential Mitigations

• A business advisor can help you research the long-term market trends and competitive landscape for the specific industry.
• You should evaluate the franchisor's plans for menu innovation and brand evolution with your marketing advisor to gauge its adaptability.
• An accountant can help you model the financial resilience of the business in a competitive, non-fad market.

Explanation

The FDD does not disclose that the franchisor is owned by a private equity firm. When this ownership structure exists, it's important to consider that the firm's priorities may focus on short-term investor returns, which can sometimes conflict with the long-term health of franchisees. This could manifest as pressure to cut support costs or a focus on reselling the system within a specific timeframe.

Potential Mitigations

• A business advisor can help research the ownership structure of any franchisor to understand the ultimate decision-makers' background and typical investment strategy.
• Speaking with franchisees of a PE-owned brand about any changes in culture, support, or fees since the acquisition is a prudent step.
• Your attorney should analyze the franchisor's right to sell the system and the implications for you if a new owner takes over.

Explanation

This risk was not identified. The FDD appears to disclose the parent company and a related Master Licensor, providing organizational transparency. Generally, if a franchisor is a subsidiary, it is critical that the parent company is also disclosed, especially if it guarantees the franchisor's obligations or if the franchisor is thinly capitalized. Failure to do so can obscure the true financial backing and stability of the system.

Potential Mitigations

• An attorney can help verify a franchisor's corporate structure and identify any undisclosed controlling entities.
• If a parent company exists, your accountant should determine if its financial statements are necessary for a complete risk assessment.
• When a parent provides a guarantee, your attorney should review the terms of that guarantee to understand its scope and limitations.

Explanation

The FDD indicates that the franchisor has no predecessor entities, so this specific risk is not applicable. In cases where a franchisor has acquired the system from a predecessor, it is important to review the history of that predecessor, including any past litigation (Item 3), bankruptcy (Item 4), or franchisee turnover (Item 20), as historical problems could carry over to the new entity.

Potential Mitigations

• Your attorney should always verify the information in Item 1 regarding predecessors and parent companies.
• If a predecessor existed, a business advisor could help you research its historical track record and reputation among former franchisees.
• When a system is acquired, asking long-term franchisees about their experience under both old and new ownership provides valuable insight.

Explanation

This risk was not identified. Item 3 of the FDD does not disclose any litigation against the franchisor or its management that would suggest a pattern of disputes with franchisees. A history of lawsuits alleging fraud, misrepresentation, or breach of contract can be a significant red flag, indicating potential systemic issues with the franchisor's practices or franchisee relations.

Potential Mitigations

• It is always prudent to have your attorney carefully review the disclosures in Item 3 for any litigation history.
• A business advisor can help you conduct independent online searches for any news or discussions related to litigation involving the franchisor.
• Your attorney can advise on the significance of any disclosed litigation, including the nature of the claims and their outcomes.