Explanation

This risk was not identified. The audited financial statements in Exhibit P show that the franchisor, DFO, LLC (DFO), has a positive and growing net worth and has been profitable for the last three fiscal years. There are no disclosed signs of financial instability, such as a going concern note from the auditors. A financially stable franchisor is better positioned to support its franchisees and invest in the brand's long-term health.

Potential Mitigations

• Your accountant should still review the complete financial statements, including all footnotes, to form an independent opinion on the franchisor's financial health.
• Ask your business advisor to assess the franchisor's financial trends over the past three years for any subtle signs of potential future weakness.
• Inquire with your attorney about any state-mandated financial assurances, like bonds or escrow, that might apply despite the stable appearance.

Explanation

This risk was not identified. While the system has seen a net decrease in franchised units over the last three years, the data in Item 20 does not indicate a rate of growth so rapid that it would strain support systems. Typically, this risk involves a franchisor adding units faster than they can scale their training, operational, and marketing support, which does not appear to be the case here. The system is mature and shrinking slightly, not expanding rapidly.

Potential Mitigations

• Engage a business advisor to review the franchisor's support structure in relation to its system size to ensure it appears adequate for your needs.
• In discussions with existing franchisees, it would be wise to inquire about the current quality and responsiveness of franchisor support.
• Your accountant can review the franchisor's financial statements in Item 21 to confirm they are allocating sufficient resources to franchisee support services.

Explanation

This risk is not present. DFO, LLC and its predecessors have been franchising Denny's restaurants since 1963, as disclosed in Item 1. The brand is well-established with a long operational history and extensive brand recognition. This is a mature franchise system, not a new or unproven one, which generally reduces risks associated with unproven business models or inexperienced franchisors. The system's long history provides a substantial track record for your review.

Potential Mitigations

• Your business advisor should still evaluate the brand's current market position and competitive landscape to ensure its long history translates to present-day strength.
• When speaking with franchisees, ask about the franchisor's ability to adapt and innovate despite its age.
• An accountant can help you assess whether the mature system's fee structure and investment costs are justified by its current performance.

Explanation

This risk was not identified. Denny's is a full-service, family-style restaurant concept that has operated for over 60 years. This long history and broad appeal suggest a sustained consumer demand and a business model that is not dependent on a fleeting trend. A fad business carries the risk that consumer interest could decline sharply, jeopardizing the long-term viability of your investment, which is not a primary concern for a legacy brand like this.

Potential Mitigations

• Consult with a business advisor to analyze the current competitive landscape for family dining and assess Denny's position within it.
• Review Item 11 disclosures with your attorney to understand the franchisor's commitment to innovation and brand evolution.
• When speaking with franchisees, inquire about recent trends in customer traffic and sales to gauge the brand's current relevance.

Explanation

This risk is not present. The executive team described in Item 2 possesses extensive experience in the restaurant industry and, in many cases, long tenures with Denny's itself or other major restaurant brands. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support. However, the disclosed backgrounds of the Denny's leadership team indicate a deep familiarity with both the industry and franchise operations.

Potential Mitigations

• It is still advisable to research the recent performance of other brands that key executives have been involved with, which a business advisor can assist with.
• When speaking with current franchisees, inquire about their direct experiences with the management team's competence and support.
• Your attorney can help you confirm if there have been any recent, undisclosed changes in key management.

Explanation

This risk was not identified in the FDD. Item 1 describes the franchisor's parent as Denny's Corporation, a publicly-traded company, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand. Since this is not the ownership structure here, this specific risk is not applicable. The franchisor is part of a long-standing public corporation focused on the restaurant industry.

Potential Mitigations

• Your business advisor can still research the current strategy and priorities of the parent company, Denny's Corporation, to understand its vision for the brand.
• An accountant should review the parent company's public financial filings to assess its overall financial health and commitment to the Denny's system.
• Consult your attorney regarding the terms of the franchise agreement to understand how a future sale of the company could impact your franchise.

Explanation

This risk was not identified. Item 1 clearly discloses the parent company, Denny's Corporation, and its role. The financial statements for the franchisor, DFO, LLC, are provided in Exhibit P as required. In cases where a franchisor is a thinly capitalized subsidiary, the parent's financials might also be necessary for a full risk assessment, but there is no indication here that required disclosures have been omitted. The provided documents appear to offer a clear view of the franchisor's own financial standing.

Potential Mitigations

• Your attorney should confirm that all required financial disclosures for the franchisor and any guaranteeing parent entities have been properly included.
• An accountant can help you understand the financial relationship between the franchisor (DFO, LLC) and its parent company.
• If any obligations are guaranteed by the parent, ensure your attorney reviews the specific terms and enforceability of that guarantee.

Explanation

This risk was not found to be a significant concern. Item 1 details a long and complex corporate history involving several predecessors and name changes, with the current structure tracing back to entities from the 1980s and 1990s. While complex, the history is disclosed. The primary risk of predecessor issues is when a negative history is hidden or downplayed, which doesn't appear to be the case, as litigation and bankruptcy history for the current entities are disclosed elsewhere.

Potential Mitigations

• Having your attorney review the detailed corporate history in Item 1 is a good step to understand the franchisor's lineage.
• When speaking with long-term franchisees, asking about their experience through different ownership structures could provide valuable context.
• A business advisor can help research the public history of predecessor companies like Flagstar Corporation for any additional context.