Explanation

The franchisor's audited financial statements in Item 21 do not indicate financial instability. Clean Eatz Franchising LLC ('Clean Eatz') reported significant net income in both 2022 and 2023, with a healthy balance sheet and positive cash flow. This financial strength suggests the company has resources to support its system and franchisees. However, a franchisor's financial health can change, impacting their ability to provide ongoing support and grow the brand.

Potential Mitigations

• Have your accountant review the audited financials, including all notes, to confirm their assessment of the franchisor's stability.
• It is wise for your business advisor to assess the franchisor's revenue sources to ensure they are sustainable.
• An accountant can help you understand the financial health trends over the past few years.

Explanation

This risk was not identified in the FDD package. The franchisor, Clean Eatz, began franchising in 2015 and has grown to nearly 100 units, indicating it is no longer a new or unproven system. Evaluating a system's maturity and track record is crucial, as new franchisors may have underdeveloped support systems and an unproven business model, which increases your investment risk.

Potential Mitigations

• With any franchise, it is prudent to have a business advisor help you assess the franchisor's track record and the system's maturity.
• An accountant can analyze the financial statements to determine if the company has a history of stability and profitability.
• Your attorney can help you understand the risks associated with a franchise system's age and experience level.

Explanation

This risk was not identified in the FDD package. The Clean Eatz concept, focused on healthy, quick-serve meals and meal plans, appears to align with sustained consumer interest in health and convenience rather than a short-lived trend. A key risk in franchising is investing in a concept that is a fad, as your long-term contractual obligations will outlast the fleeting popularity, potentially leading to business failure.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for the products or services offered.
• It is wise to question the franchisor about their plans for innovation and adaptation to stay ahead of market trends.
• Discussing the business model's resilience to economic shifts with a financial advisor is a recommended step.

Explanation

This risk was not identified in the FDD package. The key executives of Clean Eatz listed in Item 2 have significant, long-term experience in the restaurant industry and with the Clean Eatz brand itself since its inception. Inexperienced management can be a major risk, as it may lead to poor strategic decisions and inadequate franchisee support. The experience level of this team appears to be a positive factor.

Potential Mitigations

• A thorough review of the management team's background in Item 2 with your business advisor is always a crucial due diligence step.
• It's beneficial to ask current franchisees about their direct experiences with the management team's competence and support.
• Your attorney can help you assess if the leadership's experience aligns with the specific demands of a franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 indicates Clean Eatz is owned by V&V Holdings, LLC, which is in turn owned by the company's original founders, not by a private equity firm. Private equity ownership can sometimes introduce a focus on short-term returns over the long-term health of the franchise system, potentially impacting franchisee support and costs.

Potential Mitigations

• It is important to understand the franchisor's ownership structure, which your attorney can help you investigate.
• A business advisor can help you research the track record of any parent company, especially if it is a private equity firm.
• Discussing any changes in support or system philosophy since an ownership change with current franchisees is a valuable exercise.

Explanation

This risk was not identified in the FDD package. Clean Eatz discloses its parent company, V&V Holdings, LLC, in Item 1. However, since the parent company does not guarantee the franchisor's obligations and the franchisor itself provides audited financial statements demonstrating financial stability, the parent company's financials are not required or provided. The risk of non-disclosure arises when a thinly capitalized franchisor hides behind an undisclosed or financially weak parent.

Potential Mitigations

• Your accountant should review the provided financial statements to assess if the franchisor is adequately capitalized on its own.
• An attorney can verify the corporate structure and determine if a parent company guarantee is necessary or should have been provided.
• Ensuring all controlling entities are properly disclosed is a key part of the due diligence process your attorney will perform.

Explanation

This risk was not identified in the FDD package. Clean Eatz Franchising, LLC was formed in 2015 and does not list any predecessors. Therefore, there is no predecessor history to analyze for issues like past litigation or bankruptcy. When a franchisor has predecessors, it is vital to review their history as it can reveal inherited problems or a pattern of past failures within the system.

Potential Mitigations

• Your attorney should always confirm whether a franchisor has predecessors and review their history as disclosed in Items 1, 3, and 4.
• A business advisor can help you research the track record of any predecessor companies for a more complete picture of the system's history.
• Asking long-tenured franchisees about their experience under any former ownership can provide valuable insight.

Explanation

This risk was not identified in the FDD package. Item 3 states that Clean Eatz has no litigation that requires disclosure. A pattern of franchisee-initiated lawsuits alleging fraud, misrepresentation, or breach of contract is a significant red flag, potentially indicating systemic problems with the franchisor's practices or the viability of the business model. The absence of such litigation is a positive indicator.

Potential Mitigations

• Although no litigation is disclosed, an attorney can still perform independent searches for legal disputes involving the franchisor.
• A business advisor can help you research online forums and news articles for any informal complaints or disputes.
• Always ask current and former franchisees about their relationship with the franchisor and any disputes they may be aware of.