Explanation

This risk was not identified. Chester's International, LLC (Chester's LLC) has a complex but long operational history through predecessors dating back to 1974, with the current franchising model beginning around 2008. The system is mature, with nearly 1,000 units. A new or unproven system presents risks like an untested business model or lack of brand recognition, which do not appear to be the primary concerns here.

Potential Mitigations

• A business advisor can help you investigate the history and track record of the franchisor and its management team.
• It is beneficial to have your accountant review the financial statements of any new franchise system for signs of adequate capitalization.
• Speaking with the earliest franchisees of a new system is a key due diligence step your attorney can help facilitate.

Explanation

This risk was not identified. The business model, focusing on fried chicken within convenience stores and other retail locations, is a well-established concept in the quick-service restaurant industry rather than one based on a recent or niche trend. A fad business carries the risk of declining consumer interest over time, which could jeopardize the long-term viability of your investment after the trend fades.

Potential Mitigations

• Engage a business advisor to help you conduct independent market research on the long-term consumer demand for the franchise's core products or services.
• Question the franchisor about their strategies and budget for research and development to keep the brand relevant.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified. The executive team described in Item 2 generally possesses many years of experience in the restaurant and franchise industries. For example, the Managing Director has been with the company since 2012, and other executives have experience with large brands. Inexperienced management can be a risk if they lack the expertise to provide adequate support, manage growth, or navigate industry challenges.

Potential Mitigations

• A business advisor should help you thoroughly vet the specific backgrounds of the key management team for relevant industry and franchising experience.
• It is important to ask existing franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you understand the stability of the management team and inquire about any recent, significant turnover.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose ownership by a private equity firm. This type of ownership can sometimes lead to decisions that prioritize short-term investor returns, such as cutting franchisee support or rapidly selling franchises, over the long-term health of the brand. It can also increase the likelihood of the franchise system being sold.

Potential Mitigations

• Your business advisor can help you research the ownership structure of the franchisor and the track record of any parent investment firm.
• It is wise to ask current franchisees if they have noticed any changes in franchisor priorities or support levels since any ownership change.
• Your attorney should review the assignment clause in the Franchise Agreement to understand your rights if the system is sold.

Explanation

This risk was not identified. Item 1 does not disclose any parent companies, and Item 21 provides audited financial statements for the franchising entity, Chester's International, LLC. In cases where a franchisor is a subsidiary of a larger parent, the parent's financial health can be critical. A failure to disclose a parent or provide its financials when required could obscure the true financial backing of the franchise system.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and identify any undisclosed parent or controlling entities.
• If a parent company exists and guarantees the franchisor's obligations, it is important for your accountant to review the parent's financial statements.
• A business advisor can help assess the level of operational and financial support a parent company provides to its franchise subsidiary.

Explanation

The franchisor has a complex history involving predecessors and affiliates, including 'First Chester's' and 'Giles Enterprises, Inc.' which licensed 'Chester Fried' locations since 1974. The FDD provides some detail, but the full operational history and potential lingering brand confusion or inherited issues from these past structures may not be entirely clear. This can make it difficult to assess the system's true historical performance and challenges.

Potential Mitigations

• Your attorney should carefully review the predecessor and affiliate information in Item 1 and cross-reference it with other items like litigation and turnover.
• Speaking with long-term franchisees who operated under predecessor entities can provide valuable insight into the system's history.
• A business advisor can help you research the public records and reputation of any predecessor companies.

Explanation

This risk was not identified. Item 3 states, 'No litigation is required to be disclosed in this Item.' This indicates there is no pending or recent litigation against the franchisor that meets the specific disclosure requirements of franchise law, such as actions alleging fraud or violation of franchise statutes. A pattern of such litigation would be a significant red flag about the franchisor's practices.

Potential Mitigations

• Your attorney should confirm that no material litigation is present and explain the specific types of legal actions that require disclosure.
• It can be beneficial to conduct an independent public records search for litigation involving the franchisor, as not all lawsuits meet the threshold for FDD disclosure.
• Always ask current and former franchisees about their experiences and whether they are aware of any significant disputes within the system.