Explanation

This risk was not identified in the FDD package. The system is very new, with only one franchised outlet reported in Item 20, so meaningful turnover data is not yet available. High turnover in a mature system can signal systemic problems, such as lack of profitability, poor support, or franchisee dissatisfaction. It is a critical metric to monitor in future FDDs.

Potential Mitigations

• Your accountant can help you establish benchmarks for acceptable turnover rates within the franchise industry to use for future evaluation.
• A business advisor can help you interpret Item 20 data in future FDDs to spot negative trends early.
• It is advisable to have your attorney explain the different categories in Item 20, such as terminations versus transfers.

Explanation

This risk was not identified, as Item 20 data shows very slow growth, with only one franchised outlet opened in the last two years. While this avoids the risks of strained support systems associated with rapid expansion, it may also indicate challenges in attracting new franchisees. Rapid growth in a franchise system can sometimes outpace the franchisor's ability to provide adequate support and maintain quality control.

Potential Mitigations

• Your business advisor can help you assess whether the pace of growth aligns with the franchisor's support capabilities.
• When analyzing future FDDs, your accountant can compare growth in units with the franchisor's investment in support staff and infrastructure.
• Consulting with your attorney about the terms of support offered in the Franchise Agreement is a prudent step.

Explanation

This risk was not identified in the FDD. The business concept, centered on Japanese-style curry restaurants, is part of a well-established and durable segment of the food service industry. The business does not appear to be based on a short-term trend or fad, which reduces the risk of a sudden decline in consumer demand that could jeopardize the long-term viability of your investment.

Potential Mitigations

• Engage a business advisor to conduct independent market research to confirm long-term consumer demand for this restaurant category in your area.
• Your accountant can help you analyze market data to assess the stability and growth potential of the Japanese restaurant segment.
• It is wise to discuss the franchisor's plans for menu innovation and adaptation with them directly.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a wholly-owned subsidiary of ICHIBANYA CO., LTD., a Japanese corporation, not a private equity firm. This ownership structure may suggest a focus on long-term brand building rather than the shorter-term investment horizons often associated with private equity, which can sometimes lead to decisions that prioritize quick returns over franchisee success.

Potential Mitigations

• It is still prudent to have your attorney investigate the ownership structure and any history of recent sales of the company.
• A business advisor can help you research the parent company's history and its approach to managing its other business ventures.
• Understanding the franchisor's assignment rights in the Franchise Agreement with your attorney is crucial regardless of ownership.

Explanation

This risk appears low as the franchisor clearly discloses its parent and affiliate relationships in Item 1. It provides its own audited financial statements. While the parent company's financials are not included, there is no parent guarantee of performance mentioned that would mandate their inclusion. The key risk here is not non-disclosure, but the heavy financial dependence on the disclosed affiliate, which is covered under the 'Financial Instability' risk.

Potential Mitigations

• Your accountant should review the provided financials and notes to understand all inter-company relationships and dependencies.
• Your attorney can advise on whether a parent company guarantee of performance would be beneficial and if it can be negotiated.
• A business advisor can help you research the reputation and stability of the parent company, ICHIBANYA CO., LTD.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. This simplifies due diligence, as you do not need to investigate the historical performance, litigation, or bankruptcy history of a prior entity that operated the franchise system. This means the track record presented in the FDD, though short, is the complete history of this specific franchisor.

Potential Mitigations

• Your attorney should still confirm the corporate history of the franchisor to ensure no entities have been omitted.
• A business advisor can help you focus due diligence on the current management team's direct experience, since there is no predecessor history.
• You should ask your accountant to analyze the franchisor's financial statements from its inception for a complete picture.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no material litigation required to be disclosed. The absence of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, is a positive indicator. It suggests a lack of systemic disputes within the franchise relationship to date, though the system is very new.

Potential Mitigations

• It's a good practice to have your attorney perform an independent search for litigation involving the franchisor or its principals, just in case.
• During your calls with any franchisees, you should still ask about any disputes, even if they haven't resulted in litigation.
• A business advisor can help you establish a process for monitoring this area in the future.