Explanation

This risk was not identified in the FDD package. The franchise system has been shrinking over the past three years, not growing rapidly. A franchisor expanding too quickly can strain its ability to provide adequate support to new and existing franchisees, potentially leading to a decline in service quality and brand standards across the system. This does not appear to be a concern here.

Potential Mitigations

• A business advisor can help you analyze system growth trends shown in Item 20 to understand the pace of expansion or contraction.
• Should the system begin to grow rapidly, consulting with your attorney to understand the franchisor's contractual support obligations is wise.
• An accountant can review the franchisor's financial capacity to support any future growth.

Explanation

This risk was not identified in the FDD package. The franchisor was organized in 2006 and its management team has significant, long-term experience with the brand and in the restaurant industry. Investing in a new or unproven franchise system carries higher risks, as the business model may not be fully tested and the support systems can be underdeveloped, potentially impacting your chances of success.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the depth of the management team's experience in both franchising and their specific industry.
• Your attorney can help you understand the risks associated with a new system, such as a lack of legal precedents involving the brand.
• An accountant should scrutinize the financial stability of any new franchisor, as they may lack a long history of revenue.

Explanation

This risk was not identified in the FDD package. The business concept, a wood-fired pizza restaurant and craft bar, is a well-established and durable segment of the restaurant industry, not a temporary trend. Investing in a fad business is risky because consumer interest can decline rapidly, potentially leaving you with a failing business and long-term contractual obligations after the trend has passed.

Potential Mitigations

• A business advisor can help you conduct market research to gauge the long-term consumer demand for any franchise concept.
• Your attorney should review the franchise agreement to understand your obligations if you need to pivot the business model.
• Consult with your financial advisor to assess the sustainability of a business concept before investing.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have extensive and long-term experience with the Brixx brand, its parent company, and the restaurant industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational support, and an inability to effectively guide the franchise system, increasing the risk for all franchisees.

Potential Mitigations

• A business advisor can help you vet the backgrounds of the franchisor's key management team as detailed in Item 2.
• Speaking with current franchisees can provide valuable insight into the competence and effectiveness of the management team.
• Your attorney can help you understand the implications if key, experienced managers were to leave the company.

Explanation

This risk was not identified in the FDD package. The franchisor appears to be privately owned by its parent company, not a private equity firm. When a PE firm owns a franchisor, there can be a focus on short-term profitability and a quick exit, which may not align with the long-term health of the system or the individual franchisees' success.

Potential Mitigations

• If a franchisor is PE-owned, a business advisor can help you research the firm's history with other franchise brands.
• Consulting with your attorney is important to understand any clauses that would allow the franchisor to easily sell the system.
• Speaking with current franchisees about changes since a PE acquisition can offer crucial due diligence insights.

Explanation

This risk was not identified in the FDD package, as no predecessors are listed. A franchisor's predecessor is a company from which it acquired the franchise system. It is important to review the history of any predecessor, including their litigation, bankruptcy, and franchisee success rates, as their past performance can indicate potential inherited problems in the system you are joining.

Potential Mitigations

• Your attorney should carefully review Item 1 of the FDD to identify any disclosed predecessors.
• A business advisor can help you conduct independent research on a predecessor's history if one is listed.
• Speaking with long-term franchisees who operated under a predecessor can provide valuable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 discloses no material litigation involving the franchisor. A pattern of litigation, especially lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag. It may suggest systemic problems with the franchisor's business practices, disclosure integrity, or relationship with its franchisees.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• If litigation is present, a legal professional can help you research the case details for a deeper understanding.
• A high number of lawsuits initiated by the franchisor against franchisees should be discussed with a business advisor as it could indicate an aggressive culture.