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How much does Federal Donuts & Chicken cost?
Initial Investment Range
$578,000 to $827,500
Franchise Fee
$50,000 to $100,000
We offer qualified individuals and entities the right to independently own and operate a donut, fried chicken, and coffee shop offering a rotating menu of donut flavors, including classic favors and unexpected flavors, along with twice-fried, super crispy chicken sandwiches and also chicken dishes with accompanying dipping sauces and dry seasonings.
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Federal Donuts & Chicken April 9, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 21, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
TSR Franchise Group, LLC's (TSR) audited financial statements reveal extremely weak financial health. As of year-end 2024, member's equity is only $37,369, which is significantly less than your required initial investment. The FDD's own risk factors and the Virginia addendum highlight this as a potential issue, questioning the franchisor's ability to provide support and meet its obligations. This poses a significant risk to the long-term stability and support of your franchise.
Potential Mitigations
- A franchise accountant should meticulously review the franchisor's complete financial statements, including all footnotes and cash flow statements, to assess its viability.
- Discuss the franchisor's capitalization and plans for funding its obligations with your business advisor before making any investment.
- Your attorney should verify if any financial assurances like bonds or escrow are required by your state due to the franchisor's financial condition.
High Franchisee Turnover
High Risk
Explanation
While there is no history of franchisee turnover as of year-end 2024, the data for company-owned outlets is concerning. Item 20 shows that during 2024, TSR closed 3 of its 11 company-owned stores, a closure rate of approximately 27%. It also sold 4 other locations to franchisees. Such a high rate of company-owned closures could indicate potential challenges with the business model's profitability or concept viability, which may affect franchisees in the future.
Potential Mitigations
- It is critical to ask the franchisor for a detailed explanation regarding the closure of three company-owned locations in a single year.
- Contacting the franchisees who purchased the four former company-owned stores is essential to understand the circumstances of those transfers; your business advisor can help guide this.
- Your accountant should use this information to create more conservative financial projections for your potential business.
Rapid System Growth
Medium Risk
Explanation
TSR began franchising in February 2023 and opened its first 7 franchised units in 2024. This rapid initial growth, from 0 to 7 units in one year, combined with the franchisor's very limited equity, may strain its ability to provide adequate training and support to all new locations. An overstretched support system could negatively impact your business operations and ramp-up period, despite the fees you pay for these services.
Potential Mitigations
- A discussion with your business advisor is important to evaluate whether the franchisor's support infrastructure, as detailed in Item 11, can sustain this growth.
- Questioning a diverse group of the new franchisees listed in Item 20 about the quality and responsiveness of the support they are currently receiving is crucial.
- Your accountant should assess if the franchisor's financial statements in Item 21 show sufficient reinvestment into support systems.
New/Unproven Franchise System
High Risk
Explanation
TSR is a very new and unproven franchisor, formed in January 2023 and only beginning to franchise in February 2023. The FDD's 'Special Risks' section explicitly highlights the company's short operating history, stating this makes the investment riskier than a system with a longer track record. This lack of history means there is limited data to verify the long-term viability of the business model, brand recognition, and the effectiveness of the support systems.
Potential Mitigations
- Conducting extensive due diligence on the management team's prior industry and franchising experience, as detailed in Item 2, is essential.
- Speaking with the earliest franchisees listed in Item 20 to gauge their experience with the new system is a critical step.
- Given the higher risk, having your attorney attempt to negotiate more favorable terms, such as enhanced support commitments or better termination rights, could be beneficial.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD package. A fad business is one tied to a short-lived trend, which can be a significant risk because franchise agreements are long-term commitments. If consumer interest fades, your business could fail, but your contractual obligations to the franchisor would likely continue. Evaluating the long-term market demand for a product or service is a key part of due diligence before investing in any franchise.
Potential Mitigations
- Investigating the industry's history and long-term trends with a business advisor can help distinguish a sustainable model from a potential fad.
- It is wise to assess the franchisor's plans for innovation and adaptation to changing consumer tastes.
- Your accountant can help model the financial impact if initial high demand were to decrease over time.
Inexperienced Management
Medium Risk
Explanation
While some members of the management team have extensive experience in the restaurant industry, their direct experience in managing a franchise system appears limited. The Chief Development Officer has recent experience with other franchise brands, but the core leadership's background is primarily in operating non-franchised restaurants. This could present a risk if the team lacks familiarity with the unique support, legal, and relational aspects of managing a franchise network, potentially affecting the quality of guidance you receive.
Potential Mitigations
- It is important to question the franchisor about how they plan to support franchisees and what franchise-specific expertise they have on their team or as consultants.
- Speaking with the new franchisees listed in Item 20 about the quality of franchise-specific support and training they've received is a key diligence step.
- A business advisor can help you assess whether the management team's skills align with the needs of a franchisee.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD package. Private equity ownership can be a concern because PE firms often have a shorter investment horizon. This can sometimes lead to decisions that prioritize rapid returns for investors over the long-term health of the franchise system and the profitability of individual franchisees. It is a factor to consider when evaluating the stability and long-term strategy of a franchisor.
Potential Mitigations
- If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's history with other franchise brands.
- Consulting an attorney is advisable to understand any clauses in the Franchise Agreement that permit the sale of the franchise system.
- Talking to existing franchisees about any changes in support or strategy since a PE acquisition can provide valuable insight.
Non-Disclosure of Parent Company
High Risk
Explanation
The franchisor, TSR, is disclosed as a wholly owned subsidiary of TSRFD, LLC (the Parent). The Parent company guarantees TSR's obligations, owns the trademarks, and has a longer operating history. However, the FDD does not include the parent's financial statements. Without the parent's financials, it is difficult to fully assess the overall financial strength backing the franchise system, especially given TSR's own weak financial position. This is a significant information gap.
Potential Mitigations
- Your attorney should request the financial statements of the parent company, TSRFD, LLC, given its role as guarantor and owner of the intellectual property.
- A franchise accountant should analyze the financial relationship and any inter-company transactions between TSR and its parent to understand the true financial stability.
- It's wise to clarify with the franchisor the extent and enforceability of the parent's guarantee of TSR's obligations.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD package. A franchisor's predecessor is a company from which it acquired the franchise system. It is important to review the history of any predecessors, including their litigation, bankruptcy, and franchisee turnover records, as this can reveal inherited problems or provide a more complete picture of the system's long-term health and challenges. An incomplete disclosure could hide significant historical issues affecting the brand.
Potential Mitigations
- An attorney should always review Item 1 of the FDD carefully for any mention of predecessors.
- If a predecessor is identified, conducting independent research into that company's history can provide valuable context.
- Talking to long-term franchisees who operated under the predecessor can offer insights into the system's evolution and past challenges.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD package. Item 3 discloses that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag indicating systemic problems with a franchisor's practices or the viability of its business model. The absence of such litigation is a positive indicator, though not a guarantee of future performance.
Potential Mitigations
- It is always a good practice for your attorney to conduct an independent search for litigation involving the franchisor, as some disputes may not meet the criteria for disclosure in Item 3.
- Asking current and former franchisees about their relationship with the franchisor can help uncover disputes that didn't result in litigation.
- Maintaining open communication and adhering to the franchise agreement can help prevent future disputes.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems