Explanation

This specific risk was not identified in the FDD Package. Dog Haus has been franchising since 2013 and has an established history. However, for any new franchise system, this risk is important because an unproven business model or limited operational history can lead to a higher chance of failure, underdeveloped support systems, and minimal brand recognition, increasing your investment risk.

Potential Mitigations

• For any new system, it is wise to have a business advisor help you conduct extensive due diligence on the founders' industry and franchising experience.
• You should speak with the earliest franchisees to gauge their experience with the system's development and the franchisor's learning curve.
• An accountant should be consulted to scrutinize the capitalization of a startup franchisor and its reliance on initial franchise fees for income.

Explanation

The Dog Haus concept, centered on gourmet hot dogs, sausages, and burgers, operates in the competitive fast-casual restaurant sector. While the brand has been operating for over a decade, you should consider the long-term sustainability of this specific menu focus against shifting consumer tastes and dietary trends. A business highly dependent on a niche or trendy food category could face challenges if market preferences evolve, potentially impacting long-term viability and your investment.

Potential Mitigations

• With your business advisor, you should conduct independent market research to assess the long-term consumer demand for this type of menu.
• Evaluate the franchisor's plans for menu innovation, research and development, and brand evolution to stay relevant.
• Question current franchisees about sales trends and how the brand adapts to local market preferences and competition.

Explanation

This risk was not identified, as the management team described in Item 2 appears to have considerable experience in the restaurant industry and with the Dog Haus brand specifically. Some key personnel have been with the company or its predecessor for many years. Lack of relevant management experience is a significant risk in franchising because it can lead to poor strategic decisions, weak operational systems, and inadequate franchisee support, directly jeopardizing your investment.

Potential Mitigations

• For any franchise, it is crucial to have a business advisor help you thoroughly vet the executive team's background in both the specific industry and in managing a franchise system.
• You should always speak with existing franchisees about their direct experiences with the management team's competence and responsiveness.
• An attorney can help you understand if the franchisor has engaged experienced consultants to fill any gaps in their internal expertise.

Explanation

This FDD does not indicate that the franchisor is owned by a private equity firm. This risk matters because PE ownership can sometimes introduce a focus on short-term financial returns over the long-term health of the brand. This might lead to increased fees, reduced franchisee support, or pressure to use specific vendors to maximize profit for the PE firm, which typically has a planned exit strategy within a few years.

Potential Mitigations

• A business advisor can help you research a private equity firm's track record with other franchise systems it has owned.
• Speaking with franchisees who have operated under PE ownership can provide insight into changes in culture and support.
• Your attorney should be consulted to review any clauses that give the franchisor a broad right to sell the system without your consent.

Explanation

This risk was not identified in the FDD Package. The franchisor entity, Dog Haus Worldwide, LLC, and its relationship with its predecessor and affiliates are disclosed. It is important for a franchisor to disclose parent companies and their financials, especially if the franchisor is a new or thinly capitalized subsidiary. Without this information, you may not have a complete picture of the overall financial strength and stability of the entities that ultimately control the franchise system.

Potential Mitigations

• Your attorney should confirm the corporate structure and identify all parent and affiliate companies.
• If a parent company guarantees the franchisor's obligations, it is important to have your accountant review the parent's financial statements.
• You should be cautious if a franchisor is newly formed and a subsidiary of a parent that does not provide a guarantee or disclose its financials.

Explanation

The FDD discloses a predecessor entity, Dog Haus International, LLC, and a 2015 trademark dispute that was dismissed. While these are disclosed, it is important to understand the full history of the system. Incomplete disclosure about a predecessor's history, including past litigation, financial struggles, or franchisee turnover, could obscure systemic issues that may still affect the current franchise system and your potential success within it.

Potential Mitigations

• A franchise attorney can help you carefully review all information related to predecessors in Items 1, 3, and 4 of the FDD.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable historical context.
• It may be beneficial to have a business advisor conduct independent research on the predecessor's public record and reputation.

Explanation

Item 3 states that no litigation is required to be disclosed. However, Item 13 details a past trademark dispute with Carnevor, Inc., which was dismissed in 2015. While this litigation may be outside the mandatory reporting window for Item 3, it is still relevant history. A pattern of litigation, especially claims of fraud or misrepresentation from other franchisees, is a major red flag indicating potential systemic problems with a franchisor's business practices.

Potential Mitigations

• Your attorney should carefully review any disclosed litigation in Item 3 for patterns, particularly lawsuits initiated by other franchisees.
• You should ask the franchisor for more context on any disclosed litigation during your due diligence calls.
• A business advisor can help you research public records for any litigation that may not be disclosed in the FDD.