Explanation

This risk was not identified in the FDD Package. Item 20 data shows no franchisee terminations, non-renewals, or other cessations over the last three years. High turnover can be a significant red flag indicating systemic problems, such as lack of profitability or poor franchisor support. It is a positive sign that the data for this small system does not show franchisee distress.

Potential Mitigations

• It is always a valuable exercise to contact current and former franchisees from the list in Item 20 to discuss their experiences, which your business advisor can help facilitate.
• During due diligence, an accountant can help you calculate the effective turnover rate and compare it to any available industry benchmarks.
• Your attorney can help you ask the franchisor targeted questions about any franchisees who have left the system for any reason.

Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows the system size has been stable, with no net change in the number of franchised or company-owned units over the last three years. Uncontrolled, rapid growth can strain a franchisor's ability to provide adequate support, so the stable size of this system mitigates this particular risk, though it raises other questions about system growth.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support infrastructure is adequate for its current size and any future growth plans.
• It is prudent to ask existing franchisees about the quality and timeliness of the support they currently receive.
• Your accountant can review the franchisor's financial statements to determine if they have allocated sufficient resources to support the franchisee base.

Explanation

This risk was not identified in the FDD Package. The business operates in the restaurant industry, focusing on chicken wings, burgers, and sandwiches. An affiliated restaurant has been in operation since 1969. This long history and the nature of the core product suggest a stable, mainstream business concept rather than a fleeting trend. A fad business carries the risk of declining consumer interest, which could jeopardize the long-term viability of your investment.

Potential Mitigations

• Engaging a business advisor to research the long-term consumer demand and competitive landscape for casual dining and wing restaurants in your specific market is recommended.
• You should review the franchisor's plans for menu innovation and concept adaptation to ensure they are focused on long-term relevance.
• An accountant can help you model the financial resilience of the business under different market scenarios.

Explanation

This risk was not identified in the FDD Package. Item 2 discloses that the key executives have extensive, long-term experience with the Duff's brand, with careers spanning over a decade in various management roles within the company, its affiliates, and as franchisees themselves. Inexperienced management can be a significant liability for a franchise system, potentially leading to poor support and strategic errors.

Potential Mitigations

• A business advisor can help you verify the backgrounds and specific franchise-related experience of the management team.
• It is still beneficial to speak with current franchisees to get their direct feedback on the management team's competence and responsiveness.
• Your attorney can help you understand the roles and responsibilities of the key executives as outlined in the disclosure documents.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a corporation, and Item 2 suggests it is managed by its founders and principals. There is no mention of ownership or control by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, which can be a risk for franchisees.

Potential Mitigations

• It is wise to have your attorney confirm the ownership structure of the franchisor entity.
• Researching the franchisor and its principals for any affiliations with investment firms can be a useful step for a business advisor.
• Speaking with franchisees can provide insight into the franchisor's long-term vision and commitment to the brand.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly states the company has no parent entity. It properly discloses its affiliate relationships. Failure to disclose a parent company can obscure the true financial backing and control structure of a franchisor, so its absence here provides a clearer picture of the entity you would be contracting with.

Potential Mitigations

• Your attorney should always verify the corporate structure and identify all relevant affiliated companies and their roles.
• An accountant's review can help determine if the franchisor entity is sufficiently capitalized on its own, without reliance on an undisclosed parent.
• A business advisor can help you understand the relationships between the franchisor and its disclosed affiliates.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessor. Hidden or downplayed negative history from a predecessor company can obscure risks related to litigation, bankruptcy, or franchisee failure rates. The lack of a predecessor means the history presented in the FDD is that of the current franchising entity.

Potential Mitigations

• Your attorney should confirm the franchisor's corporate history to ensure no predecessor has been omitted from the disclosure.
• A business advisor can research the brand's history to see if it operated under different ownership structures in the past.
• Discussing the brand's origins and history with long-term employees or affiliates can provide additional context.

Explanation

This risk was not identified in the FDD Package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, particularly claims of fraud or breach of contract brought by other franchisees, can be a major red flag about the health and integrity of a franchise system. The absence of such litigation is a positive indicator.

Potential Mitigations

• It is prudent to have your attorney conduct an independent public records search for litigation involving the franchisor and its principals.
• Speaking with current and former franchisees can sometimes reveal disputes that did not result in formal litigation.
• Understanding the typical kinds of disputes that arise in franchising can provide context for any issues you may discover, a topic for discussion with your attorney.