Explanation

The risk of a franchisor growing too quickly and outstripping its ability to provide support was not identified. Item 20 data shows the total number of system-wide restaurants has been stable or slightly declining over the last three years, not growing rapidly. The primary change has been a shift from franchised to company-owned units.

Potential Mitigations

• Your business advisor can help you monitor the franchisor’s future growth plans to ensure they maintain a sustainable pace.
• It is a good practice to have your attorney review FDD updates annually to check for any sudden shifts in system size.
• An accountant can help assess if the franchisor's support infrastructure, as reflected in its expenses, is keeping pace with any future unit growth.

Explanation

This risk was not identified. While the franchisor entity, We Are Crackin' LLC, was formed in 2016, the system itself is well-established. Item 1 states its parent, Elmer's Restaurants, Inc., has operated since 1960, and an affiliate previously offered franchises from 1982 to 2011. The brand and operational model are mature and have a long history.

Potential Mitigations

• Even with a mature brand, it's wise to have your business advisor evaluate the current market competitiveness of the concept.
• An attorney can confirm the history and experience claimed in Item 1 through independent verification.
• Your accountant can review the long-term financial trends of the brand if additional historical data is available.

Explanation

This risk was not identified. The franchise is for a traditional family-style restaurant concept featuring breakfast, lunch, and dinner. This is a well-established segment of the restaurant industry with a long history of consumer demand, not a business based on a recent or likely fleeting trend.

Potential Mitigations

• A business advisor can help you conduct local market research to confirm sustained demand for this type of restaurant in your specific area.
• Consulting with an accountant to model financial performance based on stable, long-term industry trends is always recommended.
• Your attorney can review the FDD for any new, trendy concepts being added that might carry more risk.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have extensive, long-term experience with the parent company, Elmer's Restaurants, Inc., and deep expertise in the restaurant industry. Several managers have been with the parent company for over a decade, indicating a stable and experienced leadership team.

Potential Mitigations

• A business advisor can still help you research the reputation and track record of the management team within the franchise community.
• It is always prudent to ask current franchisees about their direct experiences with the support and guidance provided by the leadership team.
• Your attorney can verify the backgrounds of key personnel as disclosed in Item 2.

Explanation

The risk of private equity ownership, which can sometimes prioritize short-term returns over long-term system health, was not identified. Item 1 indicates the franchisor is a subsidiary of Elmer's Restaurants, Inc., which appears to be a long-standing operating company rather than a financial investment firm.

Potential Mitigations

• A business advisor can help you confirm the ownership structure and identify if any private equity firms have an indirect interest.
• Your attorney should review the assignment clauses in the Franchise Agreement to understand what happens if the franchisor is sold in the future.
• An accountant can analyze the financial statements for signs of financial engineering sometimes associated with PE ownership.

Explanation

This risk was not identified. Item 1 discloses a predecessor entity, Elmer's Franchise Systems, Inc., and provides its history. Items 3 and 4 state there is no litigation or bankruptcy history for this predecessor. The disclosure appears to be transparent and does not indicate any attempt to obscure past issues with the system's history.

Potential Mitigations

• An attorney can still perform independent searches for any historical litigation or news related to the predecessor entity for a more complete picture.
• When speaking with long-term franchisees, asking about their experience under any prior ownership or franchisor entity is a good practice.
• Your business advisor can help you assess how the transition from the predecessor may have impacted the franchise system.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. While a Washington State addendum mentions a past regulatory action concerning 'no-poach' clauses from 2019, this is a single, resolved matter and does not represent a pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation.

Potential Mitigations

• Your attorney should still conduct an independent search for litigation involving the franchisor or its affiliates as a standard part of due diligence.
• Asking current and former franchisees about any disputes they have had, whether they led to litigation or not, can provide valuable insight.
• A business advisor can help you gauge the overall health of the franchisor-franchisee relationship from franchisee feedback.