Explanation

This risk was not identified. The franchise system has been shrinking, not growing rapidly, over the past three years according to Item 20 data. Rapid growth can strain a franchisor's ability to provide adequate support to its franchisees. While system shrinkage presents its own set of challenges, the specific risk of support dilution due to over-expansion does not appear to be present here.

Potential Mitigations

• Engaging a business advisor can help you assess if a franchisor's support infrastructure is adequate for its current system size and growth plans.
• An accountant should review a franchisor's financial statements to determine if it has sufficient resources to support its stated growth objectives.
• Your attorney should review the franchisor's obligations for providing support to understand the contractual commitments.

Explanation

This risk is not present. Brixx LLC has been franchising since 2006, and its parent company has been operating restaurants since 1997. The system is established, not new or unproven. Investing in a new system carries distinct risks, such as untested operations and lack of brand recognition, which do not seem to apply here. The risks identified in this FDD relate more to financial decline and instability rather than inexperience.

Potential Mitigations

• When evaluating a franchise, a business advisor can help you research the franchisor's history and the track record of its management team.
• Speaking with the earliest franchisees in a system is a valuable step to understand how it has evolved and matured over time.
• Your accountant can help you assess whether a new franchisor has sufficient capital to survive its initial growth phase.

Explanation

The risk of this being a fad business appears low. Wood-fired pizza restaurants represent an established and mature segment of the casual dining industry rather than a concept tied to a new or fleeting consumer trend. A key risk with a fad-based business is that consumer interest may decline rapidly, but that does not seem to be the primary concern for this specific concept.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term consumer demand for a franchise's products or services.
• Reviewing a franchisor's history of innovation and menu development can provide insight into its ability to adapt to changing consumer tastes.
• Your financial advisor can help you evaluate a business model's resilience to economic shifts and its reliance on current trends.

Explanation

This risk was not identified. The executive team described in Item 2 appears to possess considerable and long-term experience in the restaurant industry, with the Brixx brand itself, and in franchising. Inexperienced leadership can pose a significant threat to a franchise system's stability and support quality, but that does not seem to be a concern based on the management biographies provided in the FDD.

Potential Mitigations

• It is always prudent to have a business advisor help you vet the background and specific franchising experience of a franchisor's key management.
• Discussions with current franchisees can provide valuable, real-world insight into the competence and effectiveness of the management team.
• Your attorney can help you understand the roles and responsibilities of the management team as outlined in the franchise agreement.

Explanation

The FDD does not indicate that Brixx LLC is owned by a private equity firm. This type of ownership can introduce specific risks, such as a focus on short-term returns over the long-term health of the brand or a quick resale of the company. Since this ownership structure is not disclosed in Item 1, this particular risk is not applicable.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's track record with other franchise systems.
• Your attorney should carefully review assignment clauses in the franchise agreement to understand what happens if the company is sold.
• Asking current franchisees about any changes in support or strategy since a PE acquisition can offer valuable insights.

Explanation

This risk was not identified. The franchisor clearly discloses its parent company, New South Pizza, Inc., in Item 1. A risk can arise if a parent company that controls the franchisor is not disclosed, or if its required financial statements are omitted. In this case, the parent is identified and Brixx LLC provides its own audited financial statements, so there is no apparent non-disclosure.

Potential Mitigations

• Your attorney can help verify a company's corporate structure to ensure all relevant parent and affiliate companies are properly disclosed.
• If a parent company guarantees the franchisor's obligations, an accountant must review the parent's financial statements for stability.
• Understanding the legal and financial relationship between a franchisor and its parent is a critical due diligence step for your attorney.

Explanation

The FDD states that Brixx LLC has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the franchise system. Risks can arise if a predecessor had a history of litigation, bankruptcy, or franchisee failures that are not fully disclosed. Since no predecessor is identified, this specific risk does not apply.

Potential Mitigations

• Your attorney should always verify the predecessor history disclosed in Item 1 of the FDD.
• If a system was acquired from a predecessor, researching the predecessor's public records and news archives can provide important historical context.
• A business advisor can help you understand how a transfer from a predecessor might impact the current state of the franchise system.

Explanation

Item 3 of the FDD states that there is no litigation required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or by the franchisor against franchisees, can be a major red flag about the health of the franchise relationship. Based on the disclosure, this risk is not present here. Item 13 does note infringing uses by third parties.

Potential Mitigations

• An attorney should always carefully review the details of any lawsuits disclosed in Item 3, including the allegations and outcomes.
• It is wise to ask existing franchisees if they are aware of any disputes, even if they have not resulted in formal litigation.
• A high number of franchisor-initiated lawsuits against franchisees for fee collection can be a sign of poor franchisee profitability, a point to discuss with your accountant.