Explanation

The risk of an unproven franchise system was not identified in the FDD package. Simply Southern Restaurant Group, LLC (SSRG) has been franchising since 2012 and has a substantial number of operating units. However, it's always important for prospective franchisees to evaluate a system's maturity and track record. An unproven system can present risks like underdeveloped support, minimal brand recognition, and a higher chance of business model failure, impacting your investment.

Potential Mitigations

• A business advisor can help you investigate the franchisor's history and the experience level of its management team.
• Speaking with the earliest franchisees on the contact list in Exhibit G can offer valuable perspective on the system's evolution.
• Your accountant should always review the franchisor's financial statements to assess its stability and history of performance.

Explanation

This risk was not identified in the FDD package, as fast-casual restaurants and chicken salad concepts have shown market sustainability. A fad business is one tied to a fleeting trend, which can create significant risk for franchisees who are locked into long-term agreements. When consumer interest wanes, sales can plummet, potentially leading to business failure while your contractual obligations to pay fees remain.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for the product or service.
• Evaluating the franchisor's commitment to research, development, and innovation is a key task for your business advisor.
• Your attorney can review the franchise agreement to determine your obligations if the business concept needs to pivot.

Explanation

This risk was not identified in the FDD package. The executive team listed in Item 2 appears to have significant and long-term experience with the brand and within the restaurant industry. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, underdeveloped operational systems, and inadequate franchisee support. This can jeopardize the entire franchise system and your investment.

Potential Mitigations

• It's always prudent to have a business advisor help you research the backgrounds of the key executives listed in Item 2.
• Speaking with current franchisees about their direct experiences with the management team can provide valuable, real-world insight.
• Your attorney should review the franchisor's obligations in Item 11 to ensure they are clearly defined and not overly discretionary.

Explanation

This specific risk was not identified, as the FDD clearly discloses the parent company structure, with BA CSC Holdings, LLC being the ultimate parent. When a franchisor is a thinly capitalized subsidiary, the financial health of a parent company becomes critical. If the parent's financial statements are not provided when they should be (e.g., if the parent guarantees performance), it can obscure a complete view of the system's overall financial stability.

Potential Mitigations

• Your accountant should always verify if the provided financial statements are for the correct entity and determine if parent financials are required and present.
• An attorney can review any parent guarantees to understand their scope and enforceability.
• A business advisor can help investigate the relationship and financial dependency between the franchisor and its parent company.

Explanation

This risk was not identified, as Item 1 provides a clear history of the brand's operational transfer to the current franchisor. When a franchisor acquires a business from a predecessor, it's important that the FDD provides a complete history. Failing to disclose or downplaying a predecessor's negative history, such as bankruptcies or high franchisee failure rates, can hide systemic problems that may still affect the brand you are buying into.

Potential Mitigations

• Your attorney should always carefully review the predecessor history disclosed in Items 1, 3, and 4.
• It is useful to ask long-tenured franchisees about their experiences under any previous ownership.
• A business advisor can help you conduct independent research on a predecessor's business reputation if one is disclosed.

Explanation

This risk was not identified in the FDD package. Item 3 states, 'No litigation is required to be disclosed in this Item.' This is a positive sign, as a pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can indicate significant systemic problems. Likewise, a high volume of franchisor-initiated litigation against franchisees could suggest an overly aggressive or unsupportive culture.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent search for litigation involving the franchisor that may not have met the criteria for disclosure.
• Asking current franchisees about the nature of their relationship with the franchisor can provide context beyond formal disclosures.
• A business advisor can help you research the franchisor’s general reputation in the franchise community.