Explanation

As a new franchise system that began franchising in 2023, there is no history of franchisee turnover yet, with only two units opened by the end of 2024. However, Item 20, Table 4 reveals that the franchisor's affiliates permanently closed three company-owned restaurants during 2024. While not franchisee turnover, the closure of multiple corporate stores in a single year could be a point of concern regarding unit-level viability or specific market challenges.

Potential Mitigations

• It is important to ask the franchisor for the specific reasons behind the closure of the three company-owned stores.
• A thorough discussion with a business advisor can help analyze the potential implications of these closures on the overall health of the brand.
• Your attorney can help you frame questions for existing franchisees about their perception of the brand's strength and stability.

Explanation

This risk was not identified in the FDD package. The system is in its infancy, with only two franchised outlets opening in 2024, indicating slow and controlled initial growth rather than rapid expansion. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is a neutral factor given the system's age. Future growth should be monitored.

Potential Mitigations

• A conversation with a business advisor about the franchisor's projected growth plan can provide insight into their strategy for scaling support.
• In discussions with the franchisor, it's wise to ask about their capacity and infrastructure to handle future expansion.
• Your attorney could inquire about any planned changes to the support structure as the system grows.

Explanation

This risk was not identified. The fast-casual Mexican restaurant concept is a well-established and durable segment of the restaurant industry, not a temporary trend. The business model is based on sustained consumer demand for burritos, tacos, and bowls, which reduces the risk of the concept being a short-lived fad.

Potential Mitigations

• Your business advisor can help research the long-term market trends for the fast-casual Mexican food industry in your specific geographic area.
• A discussion with the franchisor about their plans for menu innovation and concept evolution can provide insight into their long-term vision.
• An accountant can help you model the financial resilience of this type of business against potential economic shifts.

Explanation

While the franchisor entity is new, its key executives have extensive, long-term operational experience in the fast-casual restaurant industry, specifically with the large sister brand, Chopt Creative Salad Company. This relevant industry experience significantly mitigates the risks typically associated with a new management team, though their direct experience in franchising this specific Dos Toros brand is limited.

Potential Mitigations

• In your due diligence calls, ask current franchisees about the quality and effectiveness of the management team's support and guidance.
• A business advisor can help you assess how the management's experience with a different brand might translate to this one.
• It may be prudent to ask your attorney to confirm the roles and responsibilities of the key executives.

Explanation

This risk was not identified in the FDD package. Item 1 details the ownership structure, which involves parent companies Founders Table Franchising, LLC and Founders Table Restaurant Group, LLC, but there is no disclosure indicating that the ultimate parent is a private equity firm. Therefore, the specific risks associated with a PE firm's typical investment horizon and priorities do not appear to be present.

Potential Mitigations

• Your attorney can help you confirm the ultimate ownership structure of the franchisor if there is any ambiguity.
• Asking the franchisor directly about their long-term vision for the brand can provide insight into their operational philosophy.
• A business advisor can help you understand the potential impacts of different types of ownership structures on a franchise system.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, Founders Table Franchising, LLC, in Item 1 and provides its audited financial statements in Exhibit C. The franchisor appears to be fulfilling its disclosure obligations regarding its parent entities.

Potential Mitigations

• Your attorney should always verify that the entities disclosed in Item 1 align with the entities providing guarantees or signing agreements.
• An accountant should review the provided parent company financials to ensure they are complete and audited as required.
• It is good practice to have a business advisor help you understand the relationships between the franchisor, its parent, and any affiliates.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessors for DT Franchising LLC. The franchisor entity was formed in 2022 and appears to be the original entity for franchising this concept, so there is no predecessor history to analyze for potential inherited issues.

Potential Mitigations

• Your attorney should confirm that no predecessor entities exist that should have been disclosed.
• A business advisor can help you research the history of the Dos Toros brand itself, even if the franchising entity is new.
• In discussions with the franchisor, you could ask about the full history of the brand prior to the start of franchising.

Explanation

This risk was not identified. Item 3 discloses a single, settled class action lawsuit against affiliates concerning claims of deceptive marketing. While any litigation is a concern, a single past case that has been resolved does not constitute a 'pattern' of litigation that would suggest systemic problems with the franchisor's conduct or relationship with its franchisees. No other material litigation was disclosed.

Potential Mitigations

• Your attorney should review the details of the disclosed litigation to understand the nature of the claims and the resolution.
• It is wise to ask existing franchisees if they are aware of any other disputes, whether formal or informal, within the system.
• A business advisor can help you monitor public records for any new litigation that may arise after the FDD's issuance date.