Explanation

This risk was not identified in the FDD package. The franchisor's system is shrinking, not growing rapidly, as shown by a net decrease in the number of outlets over the past two years in Item 20. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is not a negative indicator. However, a shrinking system presents its own set of risks regarding brand health and viability.

Potential Mitigations

• During due diligence, it's wise to ask existing franchisees about the quality and timeliness of support with help from a business advisor.
• An accountant can help you review the franchisor's financials to see if they are investing in support infrastructure.
• Your attorney should review the franchisor's support obligations as defined in the Franchise Agreement.

Explanation

This risk was not identified. Champs Chicken Franchising, LLC (Champs Chicken) began franchising in 2014 and, according to Item 20, has over 400 outlets. This indicates a mature system with a significant operating history, not a new or unproven one. An unproven system can carry higher risks due to a lack of established brand recognition and tested operational procedures, which does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the maturity of the brand and its market position.
• You should always ask your attorney to scrutinize the franchisor's history and experience as detailed in Items 1 and 2.
• Speaking with long-term franchisees can provide insight into the system's evolution and stability.

Explanation

This risk was not identified in the FDD package. The business concept, offering fried chicken and related food items, is a long-established and durable segment of the restaurant industry, not a temporary fad. 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. This does not appear to be a concern with this franchise.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand and market trends for any industry you consider entering.
• It is prudent to review the franchisor's plans for product innovation and brand development with your financial advisor.
• Discuss the stability of the customer base with existing franchisees.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have extensive and long-term experience with either Champs Chicken or its affiliate, Pro Food Systems, Inc., within this specific industry. Management inexperience can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees. That does not appear to be a factor in this case based on the disclosures.

Potential Mitigations

• A business advisor can help you research the backgrounds of the franchisor's key management team.
• Engaging with current franchisees provides valuable, real-world feedback on the competence and effectiveness of the leadership team.
• Your attorney should confirm that the experience disclosed in Item 2 is relevant to both the industry and to managing a franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a privately held limited liability company, and there is no disclosure of ownership by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits and rapid franchise sales over the long-term health of the system and franchisee profitability. This does not appear to be a relevant concern here.

Potential Mitigations

• Your attorney can help you investigate the franchisor's ownership structure as disclosed in Item 1.
• Researching a private equity firm's track record with other franchise brands is a wise step if they are involved, which your business advisor can assist with.
• Inquiring with franchisees about any recent changes in ownership or management philosophy can reveal important insights.

Explanation

This risk was not identified. Item 1 states clearly, "We do not have a parent company." It does, however, properly disclose its key affiliate, Pro Food Systems, Inc., from which it derives its revenue. Failing to disclose a parent company can obscure financial instability or hide the real controlling party of a franchise system, but that does not appear to be the case here.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 of the FDD.
• If a parent company exists and provides a guarantee, an accountant should review its financial statements if provided.
• A discussion with a business advisor can help clarify the roles and relationships between a franchisor and its parent or affiliates.

Explanation

This risk was not identified. Item 1 of the FDD states, "We do not have a predecessor." A predecessor is a company from which the franchisor acquired the business concept or assets. A history of predecessors with financial or legal troubles can be a red flag, but that is not a factor here.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessors.
• If a predecessor is listed, it is important to research their litigation and bankruptcy history with the help of your attorney.
• A business advisor can assist in asking current long-term franchisees about their experience under any prior ownership.