Explanation

The franchisor's audited financial statements appear stable, showing positive net income and growing member's equity in recent years. No significant signs of financial instability like negative net worth or a 'going concern' note were identified. However, the business model relies heavily on a complex financial relationship with its affiliate, M.M. Fowler, Inc. This structure creates interdependencies that could pose risks not immediately apparent from the franchisor's standalone financials.

Potential Mitigations

• Your accountant should perform a thorough review of the audited financial statements in Exhibit C, paying close attention to the footnotes and the relationship with affiliated companies.
• A discussion with your financial advisor about the franchisor's profitability trends and cash flow is important for understanding their long-term stability.
• Ask your attorney to clarify the nature and extent of any financial guarantees between the franchisor and its affiliates.

Explanation

This risk was not identified in the FDD Package. System growth appears stable and is not characterized by the explosive expansion that often strains a franchisor's support systems. However, it is always important for a prospective franchisee to ensure a franchisor has the infrastructure to support its current and future franchisees, as overly rapid growth can dilute the quality of training, site selection assistance, and ongoing operational guidance.

Potential Mitigations

• Discussing the franchisor's strategic growth plans and their capacity for providing franchisee support with your business advisor is a prudent step.
• Asking current franchisees about their satisfaction with the level and quality of support they receive can provide valuable insight.
• Your accountant can review the franchisor's financial statements to assess if they are investing adequately in support infrastructure relative to their size.

Explanation

This risk was not identified in the FDD Package. Family Fare, LLC (Family Fare) and its predecessor have been in business for many years, and the franchise system itself has been operating since 2013 with over 100 outlets. The management team also has extensive experience in the industry. An unproven system carries higher risks because the business model, brand recognition, and support structures are not yet fully established or validated in the marketplace.

Potential Mitigations

• When evaluating any franchise, a thorough review of the management team's experience in both the specific industry and in franchising with a business advisor is crucial.
• Speaking with the earliest franchisees in a system can provide your attorney with insights into the franchisor's learning curve and initial support quality.
• An accountant should always examine the financial stability of the franchisor, which is particularly critical for newer systems.

Explanation

This risk was not identified in the FDD Package. The convenience store industry is a long-established and stable sector of the retail market, not a business based on a recent or passing trend. A fad-based business can be risky because its success is tied to temporary consumer interest, which can decline rapidly, leaving franchisees with a non-viable business and long-term contractual obligations.

Potential Mitigations

• It is always wise to have a business advisor help you conduct independent market research to assess the long-term consumer demand for any franchise's core products or services.
• Evaluating a franchisor's plans for innovation and adaptation can help you gauge its ability to remain relevant in a changing market.
• Your financial advisor can assist in considering the business model's resilience to economic shifts and its sustainability beyond any current trends.

Explanation

This risk was not identified in the FDD Package. The executives listed in Item 2 have extensive, long-term experience with the company and its affiliate, M.M. Fowler, Inc., dating back many years. Inexperienced management can pose a risk because they may lack the specific skills needed to run a successful franchise system, potentially leading to inadequate franchisee support, poor strategic decisions, and underdeveloped operational procedures.

Potential Mitigations

• When evaluating a franchise, it's beneficial to have a business advisor help you vet the backgrounds of the key management team.
• Speaking with existing franchisees is a good way to gauge their opinion of the management's competence and responsiveness.
• Your attorney can help you understand the backgrounds and roles of the individuals who will be supporting your business.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is owned by an affiliate, BFP Limited Liability Company, and an individual, not a private equity firm. Private equity ownership can sometimes introduce risks, such as a focus on short-term returns over the long-term health of the brand, which might lead to increased fees or reduced franchisee support.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor and the track record of its owners.
• It is wise to ask existing franchisees about any changes in support or company culture following a change in ownership.
• Your attorney can explain the implications of the 'Assignment' clause in the franchise agreement, which governs the sale of the franchise system.

Explanation

This risk was not identified in the FDD Package. Family Fare fully discloses its parent and affiliate relationships in Item 1. The affiliate, M. M. Fowler, Inc., is central to the business model, acting as the landlord and primary supplier of consigned inventory. The FDD is transparent about this structure. A failure to disclose a parent company can obscure the true financial backing and control structure of a franchise system, hiding potential risks from prospective franchisees.

Potential Mitigations

• Your attorney should always verify the corporate structure disclosed in Item 1 to ensure all parent and affiliate entities are properly identified.
• If a parent company provides a guarantee, your accountant should review its financial statements for stability.
• Understanding the legal and financial links between a franchisor and its parent is a key part of due diligence a franchise attorney can assist with.

Explanation

This risk was not identified in the FDD Package. The franchisor clearly discloses its predecessor, M. M. Fowler, Inc., in Item 1 and provides context on the history and evolution of the business model. Failing to properly disclose a predecessor can hide a troubled history, such as high failure rates or litigation under previous ownership, preventing you from seeing a complete picture of the system's past performance and challenges.

Potential Mitigations

• Your attorney should always carefully review the predecessor information disclosed in Items 1, 3, and 4.
• If the system was acquired, conducting independent research on the predecessor's reputation with your business advisor can be insightful.
• Asking long-term franchisees about their experience under any previous ownership is a valuable part of due diligence.