Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide essential support like training, site selection, and marketing. If a franchisor's support infrastructure does not keep pace with its unit growth, new and existing franchisees may experience a decline in service quality, which can negatively impact their business operations and potential for success. The data in Item 20 actually shows a net decline in total outlets.

Potential Mitigations

• An analysis of the franchisor's financial statements with your accountant can help determine if they have allocated sufficient resources for franchisee support.
• Speaking with both new and established franchisees can provide insight into the consistency and quality of the franchisor's support system.
• Developing a clear understanding of the support structure with a business advisor will help you assess if it can handle future growth.

Explanation

This risk is not identified in the FDD package. Checkers and Rally's are established brands that have been operating and franchising for several decades, since 1991 and 1986 respectively. An unproven system presents a higher risk because its business model, brand recognition, and support infrastructure have not yet withstood the test of time, making it difficult to predict long-term viability and franchisee success. This does not appear to be a concern here.

Potential Mitigations

• Assessing the length of time the franchisor has been in business and franchising is a crucial first step your business advisor can help with.
• A review of the management team's experience in both the specific industry and in franchising is recommended; your attorney can guide this.
• Speaking with early franchisees in a system can provide valuable insights into its evolution and the franchisor's learning curve.

Explanation

This risk is not identified in the FDD package. The business operates in the quick-service restaurant (QSR) industry, focusing on hamburgers and fries, which is a long-established and enduring market segment rather than a new or fleeting trend. A fad-based business carries the risk that consumer interest will decline, potentially leaving you with a worthless business and ongoing liabilities under the franchise agreement long after the trend has passed.

Potential Mitigations

• A business advisor can help you conduct independent market research to evaluate the long-term consumer demand for a franchise's core products or services.
• It is wise to assess the franchisor's plans for innovation and adaptation to changing market tastes with a business consultant.
• Your financial advisor can help you analyze the business model's resilience to economic shifts and its reliance on current trends.

Explanation

This risk was not identified as a primary concern. The executives listed in Item 2 generally have extensive prior experience in the restaurant and retail industries with major brands like Starbucks, Bloomin' Brands, and Miller's Ale House. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an inability to navigate industry challenges, thereby jeopardizing the entire system's stability and your investment.

Potential Mitigations

• It is always prudent to have a business advisor help you research the backgrounds of the key management team members.
• Interviewing current franchisees is a valuable way to gauge their confidence in the franchisor's leadership and support quality.
• Understanding the management's vision and strategic plan for the brand's future should be part of your due diligence process.

Explanation

This risk is not identified in the FDD package. The franchisor's parent companies, Checkers Holdings, Inc. and Checkers Topco, LLC, are disclosed in Item 1. The financial statements for Checkers Drive-In Restaurants, Inc. and Subsidiaries are provided in Exhibit H. Failing to disclose a parent company or its financials when required can obscure the true financial health and control structure of the franchise system, hiding significant risks from prospective franchisees.

Potential Mitigations

• Your attorney can help verify the corporate structure and identify all parent and affiliate companies.
• If a parent company guarantees the franchisor's obligations, it is important for your accountant to review the parent's financial statements.
• Engaging a franchise accountant to review all provided financial statements is a critical step in assessing the system's overall stability.

Explanation

This risk was not identified as a primary concern in the FDD. Item 3 does not disclose a significant pattern of litigation initiated by franchisees alleging fraud or misrepresentation. Such a pattern would be a major red flag, suggesting potential systemic issues with the franchisor's sales practices, support obligations, or overall business model. The disclosed litigation involves a data breach class action and a dispute with a former franchisee over advertising fees, which does not indicate a pattern of fraud claims.

Potential Mitigations

• A franchise attorney should always be consulted to review the nature, frequency, and outcomes of any litigation disclosed in Item 3.
• Independent online research, guided by a business advisor, can sometimes uncover additional litigation or franchisee disputes not required to be in the FDD.
• Speaking with former franchisees listed in Item 20 can provide context on disputes, whether or not they resulted in formal litigation.