Explanation

This risk was not identified in the FDD package. Bubbakoo's began franchising in 2015 and has over 100 operating units, indicating it is an established system. Unproven systems carry higher risks because their business model, brand recognition, and support structures are not well-tested, which can lead to a higher potential for failure. You should always evaluate the franchisor's history and track record as part of your due diligence.

Potential Mitigations

• A business advisor can help you research the history and stability of any franchise system you consider.
• Speaking with the earliest franchisees in a system can provide your attorney with valuable insight into its evolution and challenges.
• An accountant's review of multi-year financial data is essential to confirm a company's stability and track record.

Explanation

This risk was not identified in the FDD package. The franchise operates in the quick casual restaurant industry with a focus on Mexican-inspired cuisine, which is a well-established and mature market segment rather than a short-term 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.

Potential Mitigations

• A business advisor can help you analyze market trends to differentiate between sustainable business models and temporary fads.
• Investigating the long-term consumer demand for a franchise's core products or services is a critical due diligence step.
• Consulting with your financial advisor about a concept's resilience to economic shifts is a prudent measure.

Explanation

This risk was not identified in the FDD package. Item 2 describes a management team with significant experience in the restaurant and franchise industries, including leadership roles at major brands like Dunkin' Brands and Krispy Kreme. Inexperienced management can be a major risk, as it may lead to weak operational systems, inadequate franchisee support, and poor strategic decisions that jeopardize the entire franchise system.

Potential Mitigations

• A business advisor can help you research the background and track record of a franchisor's key executives.
• When evaluating a franchise, it is important to speak with current franchisees about their confidence in the management team.
• Your attorney can help you understand how the management's experience is reflected in the quality of the franchise agreement and support commitments.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the recent acquisition of a controlling interest by a fund managed by Thompson Street Capital Partners. Failing to disclose a parent or controlling entity is a violation of franchise law and a major red flag, as it can hide the true financial stability and control structure of the franchisor.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1, especially if the franchisor entity is newly formed.
• If a parent company exists, an accountant should determine if their financial statements are required for a complete picture of the system's health.
• Investigating the relationship between a franchisor and its parent company can be a key part of due diligence with your business advisor.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessor entities from which Bubbakoo's acquired its assets or brand. When a franchisor has a predecessor, it is important to investigate that entity's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems that have been passed on to the current franchisor.

Potential Mitigations

• Your attorney can help you analyze any disclosed predecessor history in Items 1, 3, and 4 of the FDD.
• When a predecessor exists, researching its public records and news archives can provide valuable context for your business advisor.
• Speaking with long-term franchisees who operated under a predecessor is crucial for understanding the system's history.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation must be disclosed, meaning there are no pending or recent lawsuits against the franchisor that meet the disclosure requirements for claims like fraud or franchise law violations. A pattern of such litigation is a serious red flag, suggesting potential systemic problems with the franchisor's business practices or franchisee relationships.

Potential Mitigations

• Your attorney should always carefully review the details of any lawsuits disclosed in Item 3.
• Even with no disclosed litigation, it is wise to ask current and former franchisees about their experiences and any disputes.
• A business advisor can help you perform independent online searches for any news or franchisee complaints related to litigation.