Explanation

This risk was not identified. Item 20 data does not show any franchisee terminations, non-renewals, or cessations of operation over the last three years. A stable franchise system is a positive indicator, as high turnover can signal franchisee dissatisfaction or lack of profitability. It suggests franchisees are, so far, remaining in the system.

Potential Mitigations

• Although current turnover is low, discussing the experiences of current franchisees, whose contact information is in Item 20, with your business advisor is wise.
• Your attorney can help you understand the termination and non-renewal clauses in the Franchise Agreement to be aware of future risks.
• Confirm with your accountant that the franchisor's financial model appears sustainable enough to support its franchisees long-term.

Explanation

This specific risk was not identified in the FDD package. While the system is small, the growth rate shown in Item 20 over the past three years does not appear to be excessively rapid. A franchisor expanding too quickly may strain its resources, potentially leading to inadequate franchisee support, training, and quality control, which could harm your business.

Potential Mitigations

• You should discuss the franchisor's plans for scaling its support systems with your business advisor to ensure they can handle future growth.
• Engaging with your attorney to understand the support obligations detailed in the Franchise Agreement is a crucial step.
• An accountant can help assess if the franchisor's financial statements reflect the capacity for planned expansion.

Explanation

This specific risk was not identified. The business concept of fast-casual cheesesteaks and comfort food is a well-established segment of the restaurant industry and does not appear to be based on a short-term trend. A fad business carries the risk that customer interest will decline quickly, potentially leaving you with a worthless investment and ongoing liabilities under your franchise agreement and lease.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for the products in your specific area.
• It is wise to ask the franchisor about their plans for future menu innovation and concept evolution.
• Your accountant can assist in creating financial projections that consider potential shifts in consumer tastes over the long term.

Explanation

This specific risk was not identified in the FDD package. Item 1 does not indicate that Chiddy's LLC is owned by a private equity firm. When a franchisor is PE-owned, there can be a risk that decisions are focused on short-term investor returns rather than the long-term health of the franchisees and the brand, potentially leading to increased fees or reduced support.

Potential Mitigations

• It is always prudent to ask about the franchisor's long-term ownership plans and capital structure during your due diligence calls.
• Your attorney should review the assignment clause in the Franchise Agreement to understand how a future sale of the company could affect you.
• A business advisor can help you research the ownership structure of any franchise system you consider.

Explanation

This risk was not identified. Item 1 discloses the franchisor and its affiliates but does not indicate the presence of a parent company whose financial information would be material to your decision. In some cases, a franchisor may be a thinly capitalized subsidiary, making the financial health of a parent company a critical but potentially undisclosed factor for a franchisee's risk assessment.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all relevant entities have been disclosed.
• If a parent company guarantee is mentioned in Item 21 or 22, an accountant should confirm the parent's financial statements are provided and reviewed.
• Discussing the overall corporate structure and backing with your business advisor can provide additional context.

Explanation

This risk does not appear to be present. Item 1 does not identify any predecessor entities from which Chiddy's LLC acquired the business. A predecessor history can sometimes carry risks if the prior entity had financial problems, a poor reputation, or a history of litigation, which could potentially impact the current franchise system you are joining.

Potential Mitigations

• In any franchise review, it is important to have your attorney carefully examine Item 1 for any mention of predecessors.
• A business advisor can help you research the history of the brand, even if no formal predecessors are listed.
• When predecessors exist, speaking with long-term franchisees about their experience through the transition is a key due diligence step.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that is required to be disclosed. A pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about a franchisor's practices and the health of the system. The absence of such litigation is a positive indicator.

Potential Mitigations

• It is still prudent to conduct independent online searches for any news or legal filings related to the franchisor or its principals, with help from your business advisor.
• Your attorney can advise on how to interpret the specific disclosures, or lack thereof, in Item 3.
• During franchisee calls, you can discreetly inquire about any disputes or legal issues they may be aware of.