Explanation

This risk was not identified. The audited financial statements for both the Territory Operator, Dairy Queen Montana / North Dakota LLC (DQ MT/ND), and the head franchisor's parent, International Dairy Queen, Inc. (IDQ), appear stable. A franchisor's weak financial health could impair its ability to provide support or grow the brand. This FDD package shows financially sound entities.

Potential Mitigations

• Your accountant should always review a franchisor's financial statements for several consecutive years to analyze trends in revenue, profitability, and debt.
• A business advisor can help you assess if a franchisor's financial condition is strong enough to support its system and growth plans.
• It is wise to have your attorney confirm that the provided financial statements are audited and comply with disclosure requirements.

Explanation

This risk was not identified. The Item 20 tables show slow and steady growth for the Territory Operator, DQ MT/ND, and moderate growth for the national system. A franchisor expanding too quickly can strain its ability to provide adequate franchisee support. The financials for both entities appear strong enough to support the current growth rate.

Potential Mitigations

• An accountant should analyze the franchisor's financial statements in Item 21 to determine if they have sufficient capital and cash flow to support system growth.
• Asking current franchisees about the quality and timeliness of franchisor support can provide insight into whether resources are strained.
• Your business advisor can help compare the franchise's growth rate against its support staff and infrastructure.

Explanation

This risk was not identified. The head franchisor, American Dairy Queen Corporation (ADQ), has been franchising since 1962, and the Territory Operator's business dates back to 1947. Both entities and their management teams, as described in Items 1 and 2, demonstrate extensive experience in the industry and in franchising. An unproven system increases the risk of failure due to undeveloped operational standards and support.

Potential Mitigations

• It is prudent to have a business advisor help you investigate the history and track record of the franchise system and its management.
• Franchise attorneys often recommend speaking with the longest-operating franchisees to understand the system's evolution and stability.
• An accountant can evaluate the financial track record over multiple years to assess the stability of a new or unproven system.

Explanation

This risk was not identified. The Dairy Queen brand is a long-established concept in the quick-service restaurant industry with decades of history and significant brand recognition. A business based on a fad carries the risk that consumer interest will decline, leaving you with a worthless investment. Dairy Queen's long-standing market presence suggests it is not a fad.

Potential Mitigations

• Your business advisor can help you research the long-term market demand and competitive landscape for the franchise's core products or services.
• An accountant can help you assess the business model's resilience to economic shifts and changing consumer tastes.
• When evaluating a franchise, your attorney might suggest looking for its plans for future innovation and brand evolution in Item 11.

Explanation

This risk was not identified. Item 2 of the FDD lists the business experience of the principal officers for both the Territory Operator and the head franchisor, American Dairy Queen Corporation (ADQ). The executives listed generally have many years of experience in the quick-service restaurant industry and with the DQ brand specifically. Inexperienced management can lead to poor support and strategic errors.

Potential Mitigations

• A business advisor can assist in researching the professional backgrounds of the key management personnel listed in Item 2.
• Franchise attorneys suggest asking current franchisees about their direct experiences with the management team's competence and accessibility.
• It is wise to verify the franchising and industry-specific experience of the executive team to ensure they can effectively manage the system.

Explanation

This risk was not identified. While the ultimate parent company is Berkshire Hathaway, Inc., which is a type of investment firm, the direct franchisor entities (DQ MT/ND and ADQ) have a very long and stable operating history. The primary risk of private equity ownership is a focus on short-term profits over the long-term health of the brand, which does not appear to be the case here.

Potential Mitigations

• Your business advisor should research the ownership structure of the franchisor, including any parent or private equity firms, and their history with other franchise brands.
• Speaking with franchisees about any changes in fees, support, or strategy since an ownership change can provide valuable insight.
• An attorney can review the assignment clause in the franchise agreement to understand how a sale of the franchise system could impact you.

Explanation

This risk was not identified. The FDD clearly discloses the relationship between the Territory Operator (DQ MT/ND), the head franchisor (ADQ), and the ultimate parent company, International Dairy Queen, Inc. (IDQ), which is owned by Berkshire Hathaway. The audited consolidated financial statements for the parent company, IDQ, are provided in Exhibit K as required, ensuring financial transparency.

Potential Mitigations

• When a franchisor is a subsidiary, your attorney should verify that the FDD includes the necessary disclosures and financials for the parent company.
• An accountant should analyze the financial statements of both the subsidiary and the parent to understand the complete financial picture.
• It is important to have your attorney clarify the nature of any financial guarantees the parent company provides to the franchisor.

Explanation

This risk was not identified. FDD Item 1 clearly discloses the predecessor history for the Territory Operator, DQ MT/ND, which dates back to partnerships within the same family that founded the territory operation in 1947. There are no indications of undisclosed or problematic predecessor history that would hide systemic issues. Failing to disclose such history can obscure risks from a brand's past.

Potential Mitigations

• An attorney can help investigate a franchisor's history, including any predecessors and their track record.
• If a franchisor has predecessors, it is important to review their litigation and bankruptcy history in Items 3 and 4.
• Asking long-term franchisees about their experience under any previous ownership can reveal potential inherited problems.