Explanation

The risk of a franchisor expanding too quickly and outpacing its ability to provide adequate support was not identified. FDD Item 20 data does not show excessively rapid growth that would strain support systems. However, it's generally important to ensure a franchisor has the infrastructure to support its entire network, as stretched resources can lead to poor training, weak marketing, and inadequate operational guidance for all franchisees, impacting your business.

Potential Mitigations

• During due diligence, it's wise to ask existing franchisees about the quality and responsiveness of the franchisor's support team.
• In reviewing any franchise opportunity, your accountant can help assess if the franchisor's financial statements show sufficient investment in support staff and infrastructure.
• A business advisor can help you evaluate a franchisor's growth plans against their stated support capabilities.

Explanation

This risk was not identified. Del Taco is a long-established brand, not a new or unproven franchise system. For any franchise, however, investing in a new system carries higher risks, including an unproven business model, minimal brand recognition, and a lack of experienced support staff. You would need to perform extra due diligence on the founders' experience, the business's long-term viability, and talk to the very first franchisees to gauge the new system's potential.

Potential Mitigations

• When evaluating a new franchise system, a business advisor can help you scrutinize the prior industry and franchising experience of the management team.
• Your accountant should perform a detailed review of a new franchisor's capitalization to ensure it can fund its growth and support obligations.
• It is crucial to speak with the initial franchisees of any new system to learn about their experiences.

Explanation

This risk was not identified, as quick-service Mexican food is a well-established and non-fad industry. A fad-based business carries the risk that consumer interest may decline rapidly, potentially leaving you with a worthless business but still bound by a long-term franchise agreement. It is important to assess if a business concept has long-term market sustainability or if it is tied to a temporary trend that may not last.

Potential Mitigations

• A business advisor can help you research the long-term market trends for any industry you consider entering.
• When evaluating a trendy concept, it is important to question the franchisor about its plans for product and service innovation.
• Your financial advisor can help model the financial risks of a business whose revenue depends on maintaining high consumer interest.

Explanation

This risk was not identified. Item 2 of the FDD indicates that the management teams of both Del Taco LLC (Del Taco) and its parent, Jack in the Box Inc., possess extensive experience in the restaurant and franchising industries. In any franchise, inexperienced management can be a significant risk, as it may lead to weak operational systems, inadequate franchisee support, and poor strategic decisions that could jeopardize your investment. Always verify the experience of the key leadership team.

Potential Mitigations

• When researching any franchise, your business advisor can help you investigate the backgrounds of the key executives listed in Item 2.
• Asking current franchisees about their direct experiences with the management team provides valuable insight into their competence and supportiveness.
• Your attorney can help you understand if the management team has experience with franchise-related legal and operational issues.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, provides its financial statements, and includes a parent guarantee. When evaluating a franchise, if the franchisor is a subsidiary, it's critical to understand the parent's role and financial health. A lack of disclosure about a parent company that provides essential services or guarantees performance can hide major risks and may be a violation of franchise disclosure laws, which your attorney can help assess.

Potential Mitigations

• When a franchisor is a subsidiary, your accountant should always review the provided parent financials with the same scrutiny as the franchisor's.
• Your attorney can help determine if a parent company's financials should have been included if they were omitted.
• It is important to understand the terms and strength of any parent guarantee with assistance from your legal counsel.

Explanation

This risk is not present, as Del Taco has no predecessors disclosed within the past ten years. When a franchisor has a predecessor, it is important to investigate the predecessor's history, including any past litigation or franchisee failures. This history can provide insight into potential inherited problems within the franchise system. An incomplete disclosure of a predecessor's negative history can obscure significant risks from a prospective franchisee.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and cross-reference with Items 3 and 4 for related litigation or bankruptcy.
• When a predecessor exists, a business advisor can help you research its historical performance and reputation.
• Asking long-term franchisees about their experiences under any previous ownership can provide valuable context.