Explanation

The franchisor's own audited financial statements reveal significant instability. For the year ending 12/31/2024, BB Franchisor LLC ('BB Franchisor') had a net loss of $34,467 and a negative net worth of $60,896. The FDD explicitly states this 'calls into question the Franchisor's financial ability to provide services and support.' This suggests a dependency on new franchise fees for survival, creating a substantial risk to the support you would receive.

Potential Mitigations

• Your accountant must conduct an in-depth analysis of the franchisor's audited financial statements, including the significant related-party loans.
• A business advisor can help you assess if the franchisor has sufficient capital to meet its obligations without relying on new franchise sales.
• It is crucial for your attorney to review the Illinois addendum, which requires fee deferral due to this financial condition.

Explanation

While the system is new with no operating franchised units, Item 20 and Exhibit G disclose that one franchisee who signed an agreement terminated in March 2024 without ever opening a store. An early franchisee exiting the system before operations begin is a significant negative indicator. It may suggest fundamental problems with the business model, the onboarding process, or the relationship with the franchisor, presenting a considerable risk for new entrants.

Potential Mitigations

• It is imperative that you attempt to contact the former franchisee listed in Exhibit G to understand their reasons for terminating the agreement before opening.
• Discuss the circumstances of this termination directly with the franchisor, with your attorney present to evaluate their response.
• Engaging a business advisor to assess the viability of the franchise model is critical, given this early negative outcome.

Explanation

BB Franchisor was formed in January 2023 and has no operating history as a franchisor, with zero open franchised units. While its principal has experience with affiliate-owned stores, the franchise system itself is new and unproven. This presents a higher risk regarding the viability of its franchise support systems, brand recognition, and operational playbook. The lack of a track record with independent franchisees makes it difficult to assess potential success or profitability.

Potential Mitigations

• A business advisor should help you perform extensive due diligence on the performance of the affiliate-owned stores mentioned in Item 1.
• Your attorney should carefully scrutinize the franchisor's contractual obligations for support, as there is no history to rely on.
• An accountant must review the financials to assess the franchisor's capitalization and ability to survive the startup phase.

Explanation

The franchisor entity, BB Franchisor, was formed in January 2023 and has no experience operating stores itself. While its principal, Kyle Kissane, has experience operating similar affiliate-owned stores, his experience managing a franchise system and supporting independent owners is limited to since 2023. This lack of a proven track record in providing franchisee support, combined with the company's weak financial position, increases the risk of receiving inadequate guidance and assistance.

Potential Mitigations

• A business advisor can help you thoroughly vet the management team’s specific experience in supporting a franchise network, not just operating stores.
• It is advisable to speak with the one franchisee who has signed an agreement to gauge their early interactions and perception of management.
• Your attorney should seek to strengthen the franchisor's contractual support obligations, given their limited franchising history.

Explanation

The FDD discloses that BB Franchisor is a subsidiary of its parent, BB Holdings LLC, and that it is financially dependent on loans from other related-party affiliates. However, financial statements for the parent or these affiliates, which are critical to understanding the true financial backing of the system, are not provided. Given the franchisor's negative net worth, the absence of these financials creates a significant blind spot regarding the overall stability of the enterprise supporting your franchise.

Potential Mitigations

• Your accountant should assess the risk posed by the franchisor's dependency on related-party loans without having access to the lenders' financial data.
• Your attorney should inquire why parent or affiliate financials are not provided and assess if they are required under franchise rules.
• Given this lack of transparency, it is prudent to discuss the system's overall financial health with a business advisor.