Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a low rate of franchisee terminations, non-renewals, and other cessations of business. A high turnover rate can be a significant red flag, potentially indicating systemic problems such as a lack of profitability, poor franchisor support, or an unsustainable business model. It is a critical indicator of the health and stability of a franchise system.

Potential Mitigations

• It is still advisable to have your accountant analyze the turnover data presented in Item 20 for any subtle trends over the past three years.
• Contacting current and former franchisees from the lists provided to discuss their experiences remains a crucial part of due diligence, and your attorney can help frame questions.
• A business advisor can help you compare the disclosed turnover rates with available industry benchmarks for context.

Explanation

This risk was not identified. The FDD indicates BLP was founded in 1993 and has been franchising for many years, with an established network of over 200 stores. An unproven system presents higher risks related to the viability of the business model, brand recognition, and the franchisor's ability to provide adequate support. Well-established systems generally have more refined operational procedures and a longer performance track record for you to evaluate.

Potential Mitigations

• Even with an established brand, having your attorney review the entire FDD and franchise agreement is essential to understand your rights and obligations.
• It is wise to have your accountant perform a detailed analysis of the financial performance representations in Item 19.
• A discussion with your business advisor can help you assess how this established brand competes in your local market.

Explanation

This risk was not identified in the FDD package. The business operates in the well-established ice cream and frozen dessert industry, which has demonstrated long-term consumer demand. A 'fad' business is one tied to a fleeting trend, which poses a significant risk that customer interest will decline, potentially leaving you with a failed business but still bound by long-term contractual and lease obligations. Evaluating the long-term sustainability of a concept is always important.

Potential Mitigations

• You should still work with a business advisor to research local market competition and long-term consumer trends for frozen dessert concepts in your area.
• An accountant can help you model the financial seasonality of the business to ensure you have adequate working capital during slower months.
• It is always prudent for your attorney to review lease and franchise agreement terms to understand your long-term commitments.

Explanation

This risk was not identified. Item 2 of the FDD shows that the key management team has extensive and long-term experience with the Bruster's system and in the food service industry. Franchisors with inexperienced management can pose a risk because they may lack the expertise to provide effective support, manage system growth, or make sound strategic decisions, which can negatively impact franchisee success.

Potential Mitigations

• A review of the management team's background in Item 2 with your business advisor is still a recommended step in any franchise evaluation.
• It is beneficial to ask current franchisees about their direct experiences with the management team's accessibility and effectiveness.
• Your attorney should still review the support obligations outlined in the franchise agreement to ensure they are clearly defined.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchise is founder-led and privately held, not owned by a private equity firm. Private equity ownership can introduce risks, as their typical focus on short-term returns may lead to decisions that benefit investors over the long-term health of franchisees, such as cutting support, increasing fees, or forcing a quick sale of the entire system.

Potential Mitigations

• With your attorney, it is always important to review the franchisor's assignment rights in the franchise agreement to understand what happens if the company is sold.
• A business advisor can help you research the ownership structure and history of any franchise you are considering.
• Discussing any ownership changes with current franchisees can provide valuable insight into the impact on the system.

Explanation

This risk was not identified. The franchisor structure, including its general partner (Bruster's Ice Cream, Inc.) and other affiliated entities, is disclosed in Item 1. When a franchisor is a subsidiary, the financial health of a parent company can be crucial. A failure to disclose a parent or provide its financials when required can obscure the true financial stability and backing of the franchise system, which is a key consideration for your investment.

Potential Mitigations

• Your accountant should always review the disclosed corporate structure and financials to assess the overall stability of the franchising entity.
• It is wise to have your attorney confirm that all relevant parent companies and affiliates have been properly disclosed as required by law.
• A business advisor can help you understand the relationships between the different entities disclosed in Item 1.

Explanation

This risk was not identified. The FDD does not disclose any predecessors from which BLP acquired the business. When a franchise system has a history with predecessor companies, it is important to understand that history fully. The predecessor may have had its own track record of litigation, bankruptcy, or franchisee turnover, and issues from that prior ownership could potentially carry over to the current system.

Potential Mitigations

• Your attorney should always review Item 1 for any mention of predecessors and investigate their history if they exist.
• If predecessors are mentioned, asking long-term franchisees about their experience under the previous ownership is a valuable due diligence step.
• A business advisor can assist in researching the public records of any predecessor entities for red flags.

Explanation

This risk was not identified in the FDD package. Item 3 of the FDD states there is no litigation that requires disclosure. A pattern of litigation, particularly lawsuits brought by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may signal systemic problems with the franchisor's business practices or franchisee relations. Conversely, a high volume of lawsuits initiated by the franchisor against franchisees might indicate an overly aggressive or litigious culture.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent search for litigation involving the franchisor, as the disclosure requirements have specific thresholds.
• Asking current and former franchisees about their experiences with disputes and dispute resolution can provide valuable insight.
• A discussion with a business advisor about typical litigation levels in franchising can help provide context for any findings.