Cinnaholic
Initial Investment Range
$241,082 to $526,582
Franchise Fee
$42,545
As a franchisee you will operate a casual, full-service specialty bakery under the trademark CINNAHOLIC featuring custom gourmet cinnamon rolls, and other food products and beverages authorized by us.
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Cinnaholic April 30, 2024 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
Cinnaholic Franchising, LLC (Cinnaholic) explicitly discloses that its financial condition calls into question its ability to provide support. The audited financial statements in Item 21 confirm this, showing a significant and increasing members' deficit (negative net worth) and net losses for the past two fiscal years. Several states have imposed fee deferral requirements due to these financial concerns, indicating a material risk that the franchisor may not be able to meet its obligations to you.
Potential Mitigations
- Having an experienced franchise accountant thoroughly review the franchisor's audited financial statements, including all footnotes and trends, is essential.
- Your attorney should investigate the terms of any state-mandated fee deferrals or financial assurances to understand the specific protections they may offer you.
- It is advisable to discuss the franchisor's plan to address its financial instability and achieve profitability with a business advisor before investing.
High Franchisee Turnover
High Risk
Explanation
Item 20 data reveals a potentially high rate of franchisee failure. In 2023, ten franchised outlets “ceased operations for other reasons,” representing over 15% of the outlets that started the year. This level of churn may indicate systemic challenges, profitability issues, or franchisee dissatisfaction. You should investigate the reasons for these closures, as they represent a significant risk to the viability of a new franchise.
Potential Mitigations
- It is critical to contact several former franchisees listed in Exhibit G to understand why they are no longer in the system; your attorney can help prepare questions.
- Discussing the high closure rate directly with the franchisor and evaluating the credibility of their explanations is an important step to take with your business advisor.
- Your accountant should factor this potential failure rate into your financial models and risk assessment.
Rapid System Growth
High Risk
Explanation
The system is expanding rapidly, with 25 new outlets opened in 2023 and 17 more sold but not yet open. This rapid growth, combined with the franchisor's disclosed financial weakness and high rate of unit closures, raises concerns about its ability to provide adequate training, site selection, and ongoing operational support to all franchisees. Overstretched resources could jeopardize your success and the brand's quality control.
Potential Mitigations
- Engaging a business advisor to question the franchisor about their capacity and plans for scaling support infrastructure is advisable.
- A thorough review of the franchisor's financials in Item 21 with your accountant can help assess if they have the resources to support this growth.
- Interviewing a broad range of existing franchisees about the current quality and responsiveness of franchisor support is crucial.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified. Cinnaholic has been offering franchises for over a decade and has a substantial number of operating outlets, as shown in Items 1 and 20. A new or unproven system can pose risks due to untested business models, lack of brand recognition, and inexperienced management, which do not appear to be primary concerns here based on system age and size.
Potential Mitigations
- When evaluating any franchise, it is wise to have a business advisor help you assess the system's maturity and track record.
- Speaking with long-term franchisees can provide insight into the evolution and stability of the business model.
- Your attorney can help you understand the legal history and corporate structure, which is important for both new and established systems.
Possible Fad Business
Medium Risk
Explanation
The business model focuses on a niche product: gourmet cinnamon rolls. While the company has operated for over a decade, you should consider the long-term sustainability of a specialty concept that could be sensitive to changing consumer health trends or dietary preferences. A decline in the popularity of such indulgent treats could impact your business's future viability, even if your contractual obligations to the franchisor remain.
Potential Mitigations
- A business advisor can help you research long-term consumer trends in the specialty food and dessert market.
- Question the franchisor about their strategy for product innovation and adapting the menu to evolving consumer tastes.
- When speaking with franchisees, ask about sales trends and how they perceive the long-term market demand in their areas.
Inexperienced Management
Low Risk
Explanation
This risk was not identified. FDD Item 2 indicates that the key executive officers have extensive prior experience in the franchising industry and with the Cinnaholic brand itself. Inexperienced management can be a significant risk, potentially leading to poor strategic decisions or inadequate franchisee support. However, the disclosed management history appears to be substantial for this system.
Potential Mitigations
- For any franchise opportunity, it's prudent to have your business advisor help you research the background and track record of the key management team.
- Discussing management's vision and strategy with current franchisees can provide valuable perspective on their leadership.
- Your attorney can help you investigate if there have been any recent, significant changes in key leadership roles.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD. Item 1 does not indicate that a private equity firm is the parent or controlling entity of the franchisor. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system. This does not appear to be the ownership structure here.
Potential Mitigations
- A business advisor can help you investigate the ownership structure of any franchisor to understand the motivations of its principal investors.
- Reviewing the franchisor's right to sell the system in the Franchise Agreement with your attorney is always a wise precaution.
- When interviewing franchisees, ask if they have noticed any changes in company culture or support related to investor influence.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified. FDD Item 1 clearly states the franchisor has no parent company. In cases where a franchisor is a subsidiary of a larger corporation, the financial health of that parent can be material. However, Cinnaholic is presented as a standalone entity, so this specific risk is not applicable.
Potential Mitigations
- Your attorney should always verify the corporate structure disclosed in Item 1 to ensure there are no undisclosed controlling entities.
- An accountant can help assess if the franchisor is sufficiently capitalized on its own, especially when no parent company guarantee is provided.
- It's good practice to ask the franchisor to confirm its ownership structure during your due diligence conversations.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified, as FDD Item 1 states that the franchisor has no predecessors. When a franchisor acquires a business from a predecessor, it is important to review the predecessor's history for any signs of trouble, such as litigation or bankruptcy. Since no predecessor is listed, this risk is not applicable here.
Potential Mitigations
- Confirming the absence of predecessors with your attorney is a good due diligence step.
- For any franchise, asking long-term franchisees about the history of the brand can uncover information not present in the FDD.
- Your business advisor can help research the origins of the brand to verify the information presented in Item 1.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses significant past litigation involving the franchisor's CEO from a previous business, with allegations of fraudulent transfers. While settled, this history warrants attention. More recently, the franchisor has initiated litigation against a former franchisee to enforce the contract, which it won. This history suggests a potentially litigious environment and indicates the franchisor is willing to enforce its agreements, which could be costly for you if a dispute arises.
Potential Mitigations
- A detailed review of the litigation history in Item 3 with your franchise attorney is crucial to understand the nature and potential implications of these past disputes.
- Your attorney can help you assess the franchisor's approach to conflict resolution and enforcement based on these cases.
- When speaking with former franchisees, you should inquire about their experiences with dispute resolution and the franchisor's management style.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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