Explanation

This risk was not identified. The franchisor's audited financial statements in Item 21 and Exhibit C appear to show a strong financial position, with substantial assets, revenue, and consistent profitability. Financial stability is crucial as it indicates the franchisor has the resources to support its franchisees, invest in the brand, and fulfill its contractual obligations without relying on new franchise sales for operating income.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including the notes, to confirm their financial health.
• Your accountant can also help you understand the franchisor's sources of revenue and profitability trends over the past few years.
• Engaging a business advisor can help you assess the overall stability and long-term viability of the franchise system.

Explanation

This risk was not identified. The franchisee turnover data presented in Item 20 does not appear to be high relative to the system's large size. Low turnover generally suggests franchisee satisfaction and profitability. High turnover can be a major red flag, potentially indicating systemic issues such as an unworkable business model, poor franchisor support, or franchisee unprofitability, so its absence here is a positive indicator.

Potential Mitigations

• It is always wise to discuss the franchisee turnover data in Item 20 with your accountant to understand its implications.
• Contacting current and former franchisees from the lists in the FDD can provide firsthand insight into their experiences.
• Your franchise attorney should review the termination and renewal sections of the Franchise Agreement to understand the conditions under which the relationship can end.

Explanation

This risk was not identified. While the system is growing, the rate of expansion disclosed in Item 20 does not appear to outpace the franchisor's capacity, especially given their extensive history and strong financial statements in Item 21. Controlled growth is vital, as overly rapid expansion can strain a franchisor's ability to provide adequate site selection, training, and ongoing support.

Potential Mitigations

• Consult with a business advisor to evaluate the franchisor's growth strategy against its support infrastructure.
• Speaking with franchisees who opened recently can provide insight into the quality of the current training and opening support.
• Your accountant should review the franchisor's financial statements to confirm they are allocating sufficient resources to support system growth.

Explanation

This risk was not identified. The FDD indicates Chick-fil-A, Inc. (Chick-fil-A) is a well-established company with a very long history of franchising, dating back to 1967. Investing in a new or unproven system carries higher risks, as the business model may be untested and the franchisor may lack the experience and resources to provide adequate support. This is not a concern here.

Potential Mitigations

• It is still a good practice to have your attorney review the franchisor's history and corporate structure in Item 1.
• A business advisor can help you understand the company's long-term strategic position within its industry.
• Even with a mature brand, speaking with a diverse group of franchisees about their experiences is a crucial due diligence step.

Explanation

This risk was not identified. Quick-service restaurants specializing in chicken products represent a well-established segment of the food industry with sustained consumer demand, not a fad. A fad-based business carries the risk that its popularity will decline, leaving you with a long-term contract for a business with a diminishing customer base. This does not appear to be a concern with this franchise.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer trends and competitive landscape in the quick-service restaurant industry.
• Review Item 11 for information about the franchisor's commitment to research and development of new products.
• Discuss the brand's resilience and adaptability with current franchisees.

Explanation

This risk was not identified. FDD Item 2 details the franchisor's management team, which appears to have extensive and long-term experience in both the restaurant industry and within the Chick-fil-A system itself. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support. That does not seem to be the case here.

Potential Mitigations

• It remains a good practice to have your business advisor review the backgrounds of the key management personnel listed in Item 2.
• When speaking with franchisees, you can inquire about their direct experiences with the management team's leadership and strategic direction.
• Your attorney can help you assess the overall corporate governance structure.

Explanation

This risk was not identified. The FDD indicates that Chick-fil-A is a privately held, family-controlled company, not owned by a private equity firm. While not inherently negative, PE ownership can introduce risks related to short-term profit motives and potential sales of the company, which could change the culture and support structure. That is not a factor here.

Potential Mitigations

• An attorney can help you understand the franchisor's corporate structure and any implications of its ownership.
• It is always prudent to ask current franchisees about their perception of the company's culture and long-term vision.
• Discuss the franchisor's right to assign the franchise agreement with your legal counsel.

Explanation

This risk was not identified. The FDD discloses that Chick-fil-A does not have a parent company. When a franchisor is a subsidiary, the financial health of its parent can be material, and failure to disclose it can hide potential risks. That is not a concern here, as the franchisor appears to be the ultimate parent entity and provides consolidated financial statements.

Potential Mitigations

• Your attorney should always confirm the corporate structure outlined in Item 1 of the FDD.
• It is a good practice to have your accountant verify that the financial statements provided are for the correct corporate entity.
• A business advisor can help research the company's corporate history to ensure there are no undisclosed predecessor entities.

Explanation

This risk was not identified, as Item 1 states there are no predecessors that require disclosure. A history of predecessor companies with financial or legal troubles can indicate underlying issues that might affect the current franchise system. The franchisor appears to have a long and continuous operating history under its own name, which mitigates this concern.

Potential Mitigations

• Your attorney can help you understand the disclosures regarding the franchisor's history and predecessors in Item 1.
• Reviewing the litigation and bankruptcy disclosures in Items 3 and 4 is always a prudent step in due diligence.
• A business advisor can help you research the company's public history for any additional context.

Explanation

This risk was not identified. The litigation disclosed in Item 3 involves customer class-action lawsuits rather than a pattern of franchisee-initiated legal action alleging fraud, misrepresentation, or breach of contract. A history of significant litigation with franchisees can be a major red flag, suggesting deep systemic problems, but that does not appear to be the case here.

Potential Mitigations

• A franchise attorney should always review the litigation history in Item 3 to assess its nature and potential impact.
• Discuss any disclosed litigation with the franchisor to understand their perspective on the disputes.
• You can ask current franchisees about their awareness of any significant legal disputes within the system.