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How much does Candy Cloud cost?
Initial Investment Range
$389,100 to $756,350
Franchise Fee
$48,000 to $72,000
Candy Cloud franchisees provide a unique offering of providing a unique offering of specialty drinks, coffee, tea, ice cream, and boba.
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Candy Cloud December 19, 2024 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 19, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
Candy Cloud Franchising LLC's (Candy Cloud LLC) audited financial statements reveal significant financial weakness. The company has a history of substantial operating losses, an accumulated deficit of over $370,000, and liabilities that greatly exceed its assets as of August 31, 2024. The FDD explicitly warns of this financial condition as a special risk, which could impact its ability to provide you with promised support or even remain in business.
Potential Mitigations
- A franchise accountant must thoroughly review the franchisor's financials, including all footnotes and trends, to assess its viability.
- Your attorney should analyze any state-mandated financial assurances, like a bond or escrow, and explain their protections.
- Engage your financial advisor to evaluate if the franchisor's business model appears sustainable without relying on new franchise sales.
High Franchisee Turnover
Low Risk
Explanation
High franchisee turnover was not identified in the FDD package, as the system is very new and has no history of closures. Generally, high turnover rates (terminations, non-renewals, or closures) in Item 20 can be a major red flag, often indicating systemic problems such as a lack of profitability or franchisee dissatisfaction. Monitoring this data in future FDDs is critical.
Potential Mitigations
- Inquiring with your business advisor about typical turnover rates in similar food and beverage franchise systems can provide a useful benchmark.
- An attorney can help you frame questions for the franchisor and existing franchisees about their satisfaction and future plans.
- Your accountant can help you model different scenarios for profitability to assess the long-term viability of your investment.
Rapid System Growth
High Risk
Explanation
The franchisor is experiencing extremely rapid growth, with 29 franchises sold but not yet open. This expansion, combined with the company's disclosed financial instability and limited operating history, creates a significant risk that its support infrastructure (training, site selection, operational assistance) may be unable to keep pace with demand. This could lead to inadequate support for you and other new franchisees.
Potential Mitigations
- Discuss with your business advisor the franchisor's specific plans and resource allocation for scaling its support staff and systems.
- It is crucial to ask the first few franchisees listed in Item 20 about the current quality and responsiveness of franchisor support.
- Your attorney should help you understand the support obligations detailed in Item 11 and the Franchise Agreement.
New/Unproven Franchise System
High Risk
Explanation
Candy Cloud LLC is a new franchisor with a very limited operating history, having been formed in mid-2022 and starting franchising later that year. The FDD explicitly highlights this "Short Operating History" as a special risk. Investing in a new system carries higher uncertainty regarding the viability of the business model, the effectiveness of its support systems, and its long-term stability compared to a more established brand.
Potential Mitigations
- Your business advisor should help you conduct extensive due diligence on the backgrounds and industry experience of the franchisor's management team.
- It is vital to speak with the first few operating franchisees to gauge the reality of the business model and the quality of support.
- Consult with your accountant to rigorously scrutinize financial projections, given the lack of a long-term performance track record.
Possible Fad Business
Medium Risk
Explanation
The business model is centered on specialty drinks, coffee, tea, ice cream, and boba, which caters to current consumer trends. A prospective franchisee should evaluate whether this demand is sustainable long-term or if it is part of a market trend that could fade. While the business may be popular now, the risk of it being a fad could impact its viability over the full 10-year contract term.
Potential Mitigations
- Assess the long-term market demand for these specific beverage products with your business advisor, independent of current trends.
- Evaluate the franchisor's plans for innovation and product development to adapt to changing consumer tastes.
- Consider the sustainability of the business model beyond current trends with your financial advisor.
Inexperienced Management
Medium Risk
Explanation
Item 2 indicates the key executives have experience operating a similar business since 2020 and have been with the franchisor since its inception in 2022. While this shows direct industry experience, the franchising history itself is very short, less than two years. This limited track record in managing a franchise system, as opposed to just running a store, presents a risk regarding their ability to provide sustained, effective support to a growing network.
Potential Mitigations
- Thoroughly vet the management team's background and specific experience in managing a franchise system with your business advisor.
- Speak extensively with the earliest franchisees about the quality of management's support and strategic direction.
- Your attorney can help assess whether the management team's experience justifies the contractual obligations imposed on you.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package. While private equity ownership is not disclosed here, it's a risk in franchising where decisions may prioritize short-term investor returns over the long-term health of the system or franchisee profitability. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system, creating uncertainty for franchisees.
Potential Mitigations
- It is wise to research the ownership structure of any franchisor with your business advisor.
- If a franchisor is PE-owned, your attorney can help you understand the implications of assignment clauses in the franchise agreement.
- Discussions with franchisees who have experienced a PE-takeover can provide valuable insight.
Non-Disclosure of Parent Company
Medium Risk
Explanation
Candy Cloud LLC has an affiliate, Candy Cloud IP LLC, which owns the trademarks. While the affiliate's financials are not provided, the franchisor's own financials are audited and presented. The relationship is disclosed, so the primary risk stems from the franchisor's own financial instability rather than a non-disclosure of the parent or affiliate. However, this structure separates asset ownership from operational obligations.
Potential Mitigations
- Your attorney should review the licensing agreement between the affiliate and the franchisor to understand the stability of the arrangement.
- An accountant should analyze the primary franchisor's financials to ensure it can stand on its own, regardless of the affiliate.
- Inquire about the financial health and obligations of the IP-holding affiliate with your business advisor.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. Candy Cloud LLC has no predecessor company disclosed in Item 1. When a franchisor has a predecessor, it is important to review the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems that may have been carried over to the new company. The absence of a predecessor means the franchisor's own short history is the sole basis for evaluation.
Potential Mitigations
- An attorney can confirm the absence of any undisclosed predecessors through corporate records searches.
- When a predecessor exists, it is critical for a business advisor to help research its history for any red flags.
- Always ask current long-term franchisees about their experiences under any predecessors.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD package, as Item 3 discloses no litigation. A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a major red flag about a franchisor's practices. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees might suggest an overly aggressive or litigious culture, which can be detrimental to a collaborative franchise relationship.
Potential Mitigations
- It is good practice to have your attorney conduct an independent search for litigation involving the franchisor, beyond what is disclosed in Item 3.
- If litigation is disclosed, your attorney should carefully analyze the nature and outcomes of the cases.
- Speaking with franchisees involved in past litigation can provide invaluable, firsthand insight.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems