Explanation

This risk was not identified in the disclosure document. Item 20 data does not indicate a high rate of franchisee terminations, non-renewals, or other cessations, showing only one unit ceasing operations per year for the last three years. Low turnover can be an indicator of a healthy franchise system and franchisee satisfaction. You should still investigate why any unit ceased operating.

Potential Mitigations

• It is still wise to speak with a significant number of current and former franchisees listed in Item 20 to confirm their experiences.
• Your business advisor can help you formulate insightful questions about franchisee satisfaction and profitability.
• Your attorney can review the termination and non-renewal clauses in the Franchise Agreement to understand your rights.

Explanation

This risk was not identified. CHF has been franchising since 2002 and its management team, as described in Item 2, appears to have significant experience within the company and the restaurant industry. Item 20 shows a stable and growing system. Unproven systems carry higher risks because their business models, support structures, and brand recognition are not yet fully established, which does not appear to be the case here.

Potential Mitigations

• Even with an established system, it is crucial to conduct thorough due diligence on the current management team's reputation with a business advisor.
• Speaking with long-term franchisees can provide insight into how the system has evolved and been managed over time.
• An attorney can help you understand the full history of the franchisor and any predecessors as disclosed in Item 1.

Explanation

This risk was not identified. While the brand has a unique, counter-culture theme, the core business is a quick-service sandwich restaurant, a well-established and durable industry. The franchisor has been operating for over two decades, suggesting the concept has sustained consumer demand beyond any initial novelty. A fad business, by contrast, typically has a short lifespan tied to a fleeting trend, posing a significant long-term risk to a franchisee's investment.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for the specific style of restaurant in your target area.
• Evaluate the franchisor's plans for innovation and adaptation to stay relevant in the competitive food service industry.
• Consider the sustainability of the business model beyond its branding and its resilience to economic downturns with your financial advisor.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives have long tenures with the company and/or relevant experience in the restaurant industry. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and underdeveloped operational systems. It is generally a positive sign when the leadership team has a demonstrated track record in both the specific industry and in franchising.

Potential Mitigations

• It is always prudent to research the professional backgrounds of the key executives listed in Item 2 with the help of a business advisor.
• When speaking with current franchisees, inquire specifically about their confidence in the current leadership team and the quality of support they provide.
• An attorney can help verify the information presented and check for any undisclosed issues related to management history.

Explanation

This risk was not identified. Item 1 of the FDD does not indicate that CHF is owned by a private equity firm. Private equity ownership can sometimes introduce risks, such as a focus on short-term returns over the long-term health of the franchise system, which may manifest as cost-cutting in franchisee support or pressure to use affiliated vendors. A prospective franchisee should always understand the franchisor's ownership structure.

Potential Mitigations

• You can ask your attorney to verify the corporate structure and ownership of the franchisor.
• A business advisor can help you research the reputation and track record of any parent company or controlling entity.
• It is good practice to ask current franchisees if they have noticed any changes in franchisor philosophy or support levels due to ownership changes.

Explanation

This risk was not identified. Item 1 of the FDD states, "We do not have any predecessors or parent entities." A predecessor is a company from which the franchisor acquired a major portion of its assets. When predecessors exist, it is important to review their history for any signs of trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could potentially carry over to the new entity.

Potential Mitigations

• Your attorney can help you verify the franchisor's corporate history and confirm the accuracy of the 'no predecessor' disclosure.
• Speaking with long-tenured franchisees can sometimes reveal information about the system's history prior to the current ownership.
• A business advisor can assist in researching the brand's origins to ensure no relevant history has been omitted.

Explanation

This risk was not identified. Item 3 states, "No litigation is required to be disclosed in this Item." This is a positive indicator, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may suggest systemic problems with the franchisor's sales practices, support obligations, or overall business model. An absence of such litigation is generally favorable for a prospective franchisee.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have met the technical disclosure requirements of Item 3.
• Ask current and former franchisees about any disputes they are aware of, whether or not they resulted in formal litigation.
• Even without litigation, your attorney should review the dispute resolution clauses in the Franchise Agreement to understand your rights.