Explanation

This risk was not identified in the FDD Package. The system has been shrinking, not growing at a rate that would typically strain support infrastructure. However, rapid growth in any franchise system can be a concern if the franchisor's support systems, such as training, site selection, and operational guidance, do not scale at the same pace, potentially leaving new franchisees without adequate assistance during critical phases of their business.

Potential Mitigations

• A business advisor can help you analyze the system's growth trajectory over several years to identify any potential concerns.
• In discussions with existing franchisees, it is useful to ask about the quality and timeliness of the support they receive.
• Understanding the franchisor's future growth plans and their strategy for scaling support should be a key part of your due diligence.

Explanation

This risk was not identified in the FDD Package. The Elevation Burger system has been in operation for many years, with a predecessor company formed in 2006. An established system can provide benefits like brand recognition and proven operational procedures. However, it's still important to verify that the system has adapted to current market conditions and that the management team has relevant, recent experience.

Potential Mitigations

• Your business advisor can help you research the brand's history and its performance through various economic cycles.
• A thorough review of the management team's experience, as detailed in Item 2, should be conducted with your business advisor.
• Speaking with long-term franchisees can provide insight into the system's evolution and historical challenges.

Explanation

This risk was not identified in the FDD Package. The business model, focused on hamburgers and related fast-casual items, is part of a well-established and enduring segment of the restaurant industry. Fad businesses, which are tied to temporary trends, carry a higher risk of declining consumer interest, potentially leaving you with a long-term contractual obligation for a business with a short-term appeal.

Potential Mitigations

• Engaging a business advisor to research the long-term consumer demand for the specific products and services is a prudent step.
• An analysis of the competitive landscape in your local market will help you understand the potential for sustained success.
• Discuss the brand's strategies for innovation and staying relevant over the long term with the franchisor.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the executive team is part of FAT Brands, a large, publicly-traded company that operates numerous franchise concepts. This suggests the management team possesses significant experience in the franchising industry. Inexperienced management can be a major risk, as it may lead to weak support systems, poor strategic decisions, and an inability to effectively guide franchisees.

Potential Mitigations

• A business advisor can help you research the specific backgrounds and track records of the key executives listed in Item 2.
• It is beneficial to ask existing franchisees about their direct experiences and the quality of support from the management team.
• Your attorney can help you formulate questions for the franchisor about the management team's specific involvement with the Elevation Burger brand.

Explanation

This risk was not identified in the FDD Package. The franchisor's parent company, FAT Brands, Inc., is clearly disclosed in Item 1. When a franchisor is a small or thinly capitalized subsidiary, the financial health of its parent can be critical. Failure to disclose a parent or provide its financial statements when required can obscure significant risks about the ultimate stability and backing of the franchise system.

Potential Mitigations

• Your attorney can help you verify the corporate structure and identify all relevant parent and affiliate companies.
• Understanding the legal and financial relationship between the franchisor and its parent is a task for your accountant.
• A business advisor can research the parent company's reputation and financial health through public records.

Explanation

The franchisor, EB Franchises, acquired the system from a predecessor, Elevation Franchise Ventures LLC, in 2019. While the history is disclosed, operating a system acquired from another entity can sometimes involve integrating different cultures, systems, and personnel. The high franchisee turnover seen in recent years may be related to challenges that arose before or during this transition. This history provides important context for your due diligence.

Potential Mitigations

• Seeking legal counsel to understand any liabilities or ongoing issues that may have been inherited from the predecessor is advisable.
• It is useful to ask long-term franchisees about their experience both before and after the acquisition by the current franchisor.
• A business advisor can help you research the predecessor's history and reputation if there are any concerns.