Explanation

This risk was not identified in the FDD package. The data in Item 20 does not indicate overly rapid expansion that might strain support systems. However, a franchisor growing too quickly can sometimes fail to provide adequate training, site selection assistance, and operational support to its new franchisees, potentially harming their initial performance.

Potential Mitigations

• A conversation with your business advisor about the franchisor's growth plans and support infrastructure can provide valuable context.
• Asking current franchisees about their experience with the timeliness and quality of franchisor support is a key due diligence step.
• Your accountant can review the franchisor's financials to assess whether they have allocated sufficient resources for supporting system growth.

Explanation

This risk was not identified in the FDD package. Item 1 indicates that Figaro's Italian Pizza, Inc. has been in business since 1981 and has offered franchises since 1986, giving it a long operational history. Investing in a new, unproven system can be risky because the business model, brand recognition, and support structures may not be well-established, potentially leading to a higher failure rate for early franchisees.

Potential Mitigations

• When evaluating any franchise, it is wise to have your attorney review the franchisor's complete business history as disclosed in Item 1.
• Engaging a business advisor to assess the maturity and stability of the franchise system is a recommended practice.
• Speaking with the longest-operating franchisees can provide insight into the system's evolution and stability over time.

Explanation

This risk was not identified in the FDD package. The franchise operates in the pizza restaurant industry, which is a well-established market sector and not considered a short-term fad. Investing in a fad-based business is risky because consumer demand may disappear quickly, leaving you with a long-term franchise agreement for a concept that is no longer popular or profitable.

Potential Mitigations

• A business advisor can help you analyze market trends to differentiate between a sustainable business concept and a potential fad.
• It's important to have your accountant help you assess a business model's resilience to shifts in consumer tastes and economic conditions.
• Discussing the franchisor's plans for product innovation and long-term brand development can provide insight into its sustainability.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives, such as the Chairman/CEO, have extensive and long-term experience with the company and within the pizza industry. A management team lacking experience in franchising or their specific industry can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• When evaluating any franchise opportunity, having your attorney review the executive experience outlined in Item 2 is a crucial step.
• Posing questions to current franchisees about their perception of the management team's competence and support is valuable due diligence.
• A business advisor can help you assess whether the leadership team's skills align with the company's stated goals and challenges.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned by a private equity firm. When a franchise system is owned by a private equity firm, there can be a risk that management decisions prioritize short-term returns for investors over the long-term health of franchisees, potentially leading to increased fees or reduced support.

Potential Mitigations

• Your attorney should always review Item 1 to identify the franchisor's ownership structure, including any parent or private equity entities.
• If a private equity firm is involved, a business advisor can help you research their track record with other franchise systems.
• Discussing any changes in system direction or support levels since a change in ownership with current franchisees is a prudent measure.

Explanation

This risk was not identified in the FDD package. The FDD does not indicate the existence of a parent company that would be required to provide its financial statements. In some cases, a franchisor might be a subsidiary of a larger parent company. If the franchisor is thinly capitalized and relies on the parent for support, the parent's financial health becomes critical, and its financials should be disclosed.

Potential Mitigations

• Your attorney can help you understand the complete corporate structure disclosed in Item 1.
• If a parent company guarantee is provided, it's crucial for your accountant to review the parent's financial statements.
• Understanding the exact legal entity you are contracting with and its relationship to any affiliated companies is a key step your attorney can assist with.

Explanation

This risk was not identified in the FDD package. Item 1 describes the company's history and its predecessor but does not disclose any negative history, and Items 3 and 4 are clean. If a franchisor acquired the system from a predecessor, any undisclosed negative history—such as litigation or high failure rates under the previous owner—could obscure historical problems that may still affect the system.

Potential Mitigations

• A thorough review of Items 1, 3, and 4 with your attorney will help identify any disclosed history related to predecessors.
• Independent research into a predecessor's business reputation, with the help of a business advisor, can sometimes uncover additional information.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag indicating systemic problems with the franchisor's business practices or franchisee relations.

Potential Mitigations

• Even with a clean Item 3, it's wise to conduct online searches for any news or legal actions involving the franchisor, which your attorney can assist with.
• Asking current and former franchisees about their experiences and any disputes they may have had provides important context.
• Your attorney can explain the types of litigation that legally require disclosure so you understand what might be omitted.