Explanation

As a new franchisor in the United States, Doner Shack LLC has no operating or closed franchise outlets, according to Item 20. Therefore, there is no history of franchisee turnover to analyze. High turnover in an established system can be a red flag indicating potential issues with profitability, franchisee satisfaction, or franchisor support, which are important factors for you to consider when evaluating a mature franchise.

Potential Mitigations

• Once the system matures, it's wise to have an accountant help you analyze the franchisee turnover rates in future FDDs.
• A discussion with your business advisor about the risks of joining a new system with no performance track record is essential.
• Your attorney can help you frame questions for the franchisor regarding their UK operations and any turnover that may have occurred there.

Explanation

This risk was not identified. Item 20 data shows that Doner Shack LLC is a new system in the U.S. with no existing outlets and does not project rapid expansion in the near term. For mature systems, rapid growth can sometimes strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees, which is an important consideration for prospective owners.

Potential Mitigations

• As you consider this franchise, discussing the franchisor's controlled growth strategy with a business advisor can provide valuable perspective.
• It is important to have your attorney review the support obligations outlined in the Franchise Agreement to understand what you are entitled to.
• An accountant can help you assess if the franchisor's financial resources are sufficient to support its stated growth plans.

Explanation

This risk was not identified. The business concept, centered on German-inspired street food like kebabs, is based on a food category with a long history in other parts of the world, rather than a fleeting trend. A fad business model can pose a risk because consumer interest may decline, but this concept appears to have potential for sustained demand.

Potential Mitigations

• Conducting local market research with a business advisor to gauge consumer interest in this type of cuisine is a prudent step.
• Reviewing the franchisor's plans for menu innovation and adaptation in Item 11 can provide insight into its long-term strategy.
• Discuss the concept's long-term viability and competitive positioning with your financial advisor.

Explanation

This risk appears to be low. The executive team, as detailed in Item 2, has direct experience co-founding and operating the Doner Shack brand in the United Kingdom since 2016, along with decades of general hospitality experience. Additionally, they have engaged a development director with specific experience in U.S. franchise sales. This background suggests a degree of relevant operational and developmental expertise.

Potential Mitigations

• A thorough review of the management team's background, including their specific roles and successes in the UK, with your business advisor is recommended.
• When speaking with the franchisor, inquire about how their UK experience will translate to the U.S. market and what support systems are in place.
• Consult your attorney to understand the service agreements and roles of key personnel like the development director.

Explanation

The FDD does not explicitly state that the franchisor is owned by a private equity firm. The parent company is identified in Item 1 as Franchise Brands International Inc., a British Virgin Islands corporation. While this structure may involve sophisticated investors, the specific risks typically associated with a time-horizon-driven private equity fund are not directly disclosed.

Potential Mitigations

• It is advisable to have your attorney investigate the ownership structure of the parent company to better understand the ultimate decision-makers.
• Discuss with your business advisor the potential implications of being part of a franchise system with an international corporate structure.
• Reviewing the franchisor's right to assign the franchise agreement in Item 17 with your legal counsel is important regardless of ownership.

Explanation

This risk was not identified, as Item 1 explicitly states that the franchisor has no predecessors. In cases where a franchisor has acquired a business from a previous entity, it is important to scrutinize the predecessor's history for any signs of trouble, such as litigation, bankruptcy, or high franchisee failure rates, as these could indicate underlying problems with the system.

Potential Mitigations

• In any franchise review, it is a good practice for your attorney to confirm the accuracy of statements regarding predecessors or affiliations.
• Engaging a business advisor can help you research the full history of the brand, even if a formal predecessor is not listed.
• Your accountant can analyze if there are any financial traces of asset acquisitions that might suggest an undisclosed predecessor.

Explanation

This specific risk was not identified. Item 3 of the FDD states there is no litigation that requires disclosure. A pattern of lawsuits, especially those initiated by franchisees alleging fraud, can be a major red flag. It may suggest systemic problems in the franchise relationship or an overly aggressive franchisor, and warrants careful investigation with an attorney.

Potential Mitigations

• It is always prudent to have your attorney conduct an independent public records search for litigation involving the franchisor or its principals.
• Asking current and former franchisees about their experiences and any disputes they may have had can provide valuable insight.
• A business advisor can help you assess the overall health of the franchisor-franchisee relationship within the system.