Explanation

This risk was not identified. The financial statements for Culver Franchising System, LLC (CFS) are audited by an independent firm and show a history of significant profitability and a strong balance sheet with substantial member's equity. A franchisor's financial health is critical as it indicates their ability to support franchisees, invest in the brand, and remain a viable long-term partner. Weak financials can jeopardize the entire system.

Potential Mitigations

• Even with strong financials, having your own accountant review the franchisor's statements and footnotes is a prudent step.
• It is wise to ask your business advisor to assess the franchisor's financial trends over the three years presented.
• Understanding the franchisor's primary revenue sources with help from your accountant can provide insight into their business model's stability.

Explanation

This risk was not identified. The data in Item 20, Tables 1 and 3, shows a consistent pattern of system growth and exceptionally low franchisee turnover over the past three years, with zero terminations and only one non-renewal and one closure. High turnover can be a major red flag indicating systemic problems, such as franchisee dissatisfaction, lack of profitability, or poor franchisor support, so this stability is a positive indicator.

Potential Mitigations

• A discussion with your business advisor can help you understand why low turnover is a positive sign for system health.
• You should still contact a diverse sample of current franchisees from the list in Item 20 to confirm their satisfaction with the system.
• An attorney can help you formulate questions for former franchisees to understand their reasons for leaving, even if the numbers are low.

Explanation

The system is experiencing steady growth, adding over 50 new units per year. While rapid growth can sometimes strain a franchisor's support systems, this does not appear to be a significant concern here. CFS has a long operational history and the financial statements in Item 21 indicate substantial resources are available to support this expansion. Therefore, the risk associated with this growth appears to be minimal in this specific context.

Potential Mitigations

• Engaging a business advisor to discuss the franchisor's growth strategy and support infrastructure can provide valuable context.
• Speaking with franchisees who opened recently can give you insight into the current quality of the franchisor's opening support.
• Your accountant can confirm that the financial statements reflect a company capable of sustaining its growth.

Explanation

This risk was not identified. CFS has been in business since 1984 and franchising since 1990, demonstrating a long and established history. Item 2 shows that the management team possesses extensive experience within the company and the food service industry. An unproven system or inexperienced management team can increase risks related to support, brand recognition, and overall viability, but that does not appear to be the case here.

Potential Mitigations

• It is still beneficial to review the management team's backgrounds in Item 2 with a business advisor.
• You could ask current franchisees about their perception of the management team's effectiveness and strategic direction.
• Your attorney can verify that the business history described in Item 1 is consistent with other publicly available information.

Explanation

This risk appears to be low. The Culver's concept of 'ButterBurgers & Frozen Custard' has demonstrated long-term consumer demand and has expanded successfully into 26 states. A business based on a fad faces the risk of declining consumer interest, but this brand's longevity and steady growth suggest it is a stable concept rather than a fleeting trend. This reduces the risk of being locked into a contract for a business with diminishing market appeal.

Potential Mitigations

• A business advisor can help you analyze the long-term prospects of the quick-service restaurant industry in your specific market.
• It's a good practice to research local competitors and assess the brand's potential for sustained success in your area.
• Discussing the brand's resilience and adaptability with long-standing franchisees can provide additional confidence.

Explanation

This risk was not identified. Item 2 details the backgrounds of the executive team, revealing that most key personnel have many years of experience with CFS or significant prior experience in the restaurant and franchise industries. An inexperienced management team can be a significant liability for a franchise system, potentially leading to poor support and strategy, but that does not appear to be a concern in this FDD.

Potential Mitigations

• Even with an experienced team, you may want to research the recent performance of companies where executives previously worked.
• A business advisor can help you assess the overall strength and depth of the management team described in Item 2.
• Asking current franchisees about their direct experiences with the management team can provide valuable qualitative insights.

Explanation

This risk was not identified. The FDD's Item 1 clearly outlines the multi-layered parent company structure, and the financial statements in Item 21 are for the consolidated entity, Culver Franchising System, LLC and Subsidiaries. This provides a comprehensive view of the entity you are contracting with. Failing to disclose or provide financials for a critical parent entity can obscure the true financial health and backing of a franchise system.

Potential Mitigations

• Your accountant should confirm that the provided financials properly consolidate all relevant parent and subsidiary entities.
• An attorney can help you understand the relationships between the different legal entities described in Item 1.
• In a complex structure, it is wise to ask your attorney to clarify which entity holds key assets, like the trademarks.

Explanation

This risk was not identified. Item 1 discloses a predecessor, Culver Enterprises, Inc. ("CEI"), and explains the history of the business from its founding in 1984, including the transfer of assets from CEI to the current franchisor. The disclosure appears straightforward and does not indicate any negative history is being obscured. A lack of transparency about predecessors can hide past failures or systemic issues.

Potential Mitigations

• Your attorney can review the predecessor disclosures to ensure they appear complete and compliant with franchise law.
• A business advisor could assist in researching the public history of any predecessor entities for additional context.
• You might ask long-tenured franchisees about their experiences during the transition from the predecessor entity.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item," and Item 4 states the same for bankruptcy. This is a significant positive indicator, suggesting the franchisor does not have a history of significant legal disputes with its franchisees, regulators, or other parties. A pattern of litigation, especially claims of fraud or breach of contract, is a major red flag in a franchise system.

Potential Mitigations

• An attorney can still perform an independent public records search to confirm the absence of significant litigation.
• It is a good practice to ask current franchisees about the dispute resolution culture within the system.
• A business advisor can help you assess this as one of several factors indicating a healthy franchisor-franchisee relationship.