Explanation

This risk was not identified in the FDD package. Item 20 data indicates that the franchise system has not experienced rapid growth in recent years. While slow growth avoids issues of overstretched support, rapid growth can be a risk because a franchisor's support systems, supply chain, and quality control may fail to keep pace with a fast-expanding network, potentially harming all franchisees.

Potential Mitigations

• A discussion with your business advisor about the franchisor’s growth strategy and its implications for the brand is always prudent.
• Asking your accountant to analyze how growth or lack thereof might impact system-wide funds and resources can provide valuable insight.
• Your attorney can review any development agreements to understand growth obligations.

Explanation

This risk was not identified. The FDD indicates that the franchisor has been in business and franchising for many years, with an established number of operating units. For new systems, risks can include an unproven business model, undeveloped support structures, and minimal brand recognition. A prospective franchisee would need to perform extra due diligence on the management's experience and the concept's viability.

Potential Mitigations

• It is always recommended to have an experienced franchise attorney review the FDD to confirm the franchisor's history and structure.
• A business advisor can help you evaluate the maturity and stability of any franchise system you consider.
• Speaking with long-standing franchisees provides insight into the system's evolution and track record.

Explanation

This risk was not identified. The business concept, a casual dining restaurant focused on wings and American grill fare, operates in a well-established segment of the restaurant industry. A fad business, in contrast, is often tied to a fleeting trend and may lack long-term consumer demand. Investing in a fad carries the risk of business failure once public interest wanes, even if your contractual obligations remain.

Potential Mitigations

• A business advisor can help you assess the long-term market trends for any industry you plan to enter.
• It is wise to have an accountant help you model the financial resilience of the business against potential shifts in consumer tastes.
• Reviewing the franchisor's plans for menu innovation and adaptation with legal counsel is also advisable.

Explanation

This risk was not identified. FDD Item 2 shows that the key executives have extensive and long-term experience with the franchise system itself. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support. It is crucial for a potential franchisee to vet the leadership team's background in both the specific industry and in franchising.

Potential Mitigations

• A business advisor can help you evaluate the backgrounds and track records of any franchisor's management team.
• It is prudent to ask current franchisees about the quality and consistency of leadership and strategic direction.
• Your attorney can help investigate if there has been recent, significant turnover in key management positions.

Explanation

This risk was not identified, as FDD Item 1 indicates the franchisor is privately owned by individuals, not a private equity firm. When a franchisor is PE-owned, there can be a risk that decisions prioritize short-term investor returns over the long-term health of the brand and franchisee profitability. This could manifest as reduced support, increased fees, or a quick sale of the system.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help research the firm's reputation and history with other franchise brands.
• It's crucial to ask your attorney to review assignment clauses in the franchise agreement to understand what happens if the system is sold.
• Speaking with franchisees about changes since a PE acquisition provides valuable, direct insight.

Explanation

This risk was not identified. The FDD's Item 1 disclosures regarding the franchisor's predecessor appear to be straightforward. In some cases, a franchisor may have acquired a struggling system or have a complex history with a predecessor that is not fully transparent. This can hide inherited problems related to the brand, operations, or franchisee relationships that you may unknowingly take on.

Potential Mitigations

• Your attorney should carefully review any disclosures related to predecessors in Items 1, 3, and 4.
• If a predecessor exists, a business advisor can help you conduct independent research into its history and reputation.
• It is always a good practice to ask long-tenured franchisees about their experience under any previous ownership.

Explanation

This risk was not identified, as FDD Item 3 reports no disclosable litigation. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may indicate systemic problems with the franchise relationship, business model, or disclosure practices. Conversely, a high volume of lawsuits initiated by the franchisor against franchisees could suggest an overly aggressive or punitive culture.

Potential Mitigations

• An experienced franchise attorney should always be consulted to review the details of any disclosed litigation.
• Even if no litigation is disclosed, your attorney can conduct independent searches for legal actions involving the franchisor.
• It is also wise to ask current and former franchisees about any past or present disputes within the system.