Explanation

This risk was not identified in the FDD Package. A new or unproven system can present risks due to a lack of an established track record, underdeveloped support systems, or minimal brand recognition. Bubbakoo's Franchise Systems, LLC was formed in 2014 and began franchising in 2015, with over 100 units now operating. While still a relatively young system, it has moved beyond the initial startup phase.

Potential Mitigations

• A review of the management team's history in both the restaurant industry and franchising with a business advisor is still a prudent step.
• Discussing the evolution of the brand and support systems with long-tenured franchisees can provide valuable historical context.
• An accountant should still review the financial statements to assess the stability and maturity of the franchisor's business model.

Explanation

This risk was not identified in the FDD package. A fad business risk exists when a franchise concept is tied to a fleeting trend, potentially lacking long-term consumer demand. The Bubbakoo's Burritos concept is based on Mexican-inspired quick-service food, a well-established and durable segment of the restaurant industry. Therefore, it does not appear to be a fad.

Potential Mitigations

• Engaging a business advisor to research local market competition and long-term consumer dining trends is always a good practice.
• An accountant can help you model financial scenarios based on different levels of consumer demand.
• Discussing the franchisor’s strategy for product innovation and menu development with existing franchisees can provide insight into its long-term vision.

Explanation

This risk was not identified in the FDD package. This risk arises when key executives lack experience in franchising or the specific industry. According to Item 2, the franchisor's management team, including the Co-Founders, appear to have significant prior experience in the restaurant industry and have been operating the Bubbakoo's brand since its inception in 2008 and franchising since 2015. This suggests a reasonable level of relevant experience.

Potential Mitigations

• It is still beneficial to discuss management's accessibility and the quality of their guidance with current franchisees.
• A business advisor can help you review the backgrounds of the executive team to confirm their expertise aligns with your needs.
• Your attorney can help frame questions for the franchisor about their team's direct experience in supporting franchisees.

Explanation

This risk was not identified in the FDD Package. Private equity ownership can introduce risks related to prioritizing short-term investor returns over the long-term health of the system. Item 1 and the rest of the FDD do not indicate that the franchisor is owned or controlled by a private equity firm. The principal owners appear to be the founders.

Potential Mitigations

• A consultation with your attorney to confirm the ownership structure detailed in Item 1 is always advisable.
• Asking the franchisor about any long-term plans for selling the company can provide insight into potential future changes.
• Your business advisor can help you understand the potential impacts if the company were sold to new ownership in the future.

Explanation

This risk was not identified in the FDD package. A franchisor might be a subsidiary of a larger parent company, and failure to disclose the parent's information or financials can hide risks. In this case, Item 1 does not disclose the existence of a parent company. Bubbakoo's Franchise Systems, LLC appears to be the primary entity, and its financials are provided in Item 21.

Potential Mitigations

• Your attorney can help verify the corporate structure and confirm the absence of an undisclosed parent entity.
• In discussions with the franchisor, you can seek to understand the full corporate structure and any related-party entities.
• An accountant's review of the affiliate disclosures in Item 1 and related-party transactions in Item 21 notes is recommended.

Explanation

This risk was not identified in the FDD package. This risk arises if a franchisor acquired the system from a predecessor with a negative history that is not adequately disclosed. Item 1 states that Bubbakoo's Franchise Systems, LLC does not have any predecessors, so this risk is not applicable.

Potential Mitigations

• Your attorney should always confirm the accuracy of the predecessor statement in Item 1.
• Engaging a business advisor to research the brand's history can sometimes uncover information about prior entities.
• Asking long-term franchisees about the history of the company's ownership can provide additional verification.

Explanation

This risk was not identified in the FDD Package. A pattern of litigation against the franchisor, particularly claims of fraud or misrepresentation from other franchisees, is a major red flag. Item 3 of this FDD states, 'No litigation must be disclosed in this Item.' This indicates the absence of any currently pending or recently concluded litigation that meets the criteria for disclosure.

Potential Mitigations

• It is prudent to have your attorney conduct an independent public records search for litigation involving the franchisor or its principals.
• Asking current and former franchisees about any past or pending legal disputes is a key part of due diligence.
• A business advisor can help you assess any litigation history in the context of the franchise system's size and age.