Explanation

This risk was not identified. The franchise system has not experienced rapid growth in the last three years; in fact, the number of franchised outlets decreased before a slight rebound. Rapid growth can strain a franchisor's ability to provide support, but that does not appear to be the primary risk here.

Potential Mitigations

• Your business advisor can help evaluate if the franchisor's current support infrastructure is adequate for its existing and projected new franchisees.
• Discussing the quality and timeliness of support with a range of current franchisees is a vital due diligence step.
• An accountant can review the franchisor's financial statements to assess their investment in support systems relative to their size.

Explanation

This risk was not identified. While the current franchisor entity was formed in 2017, the Five Guys system has been in operation since 1986 and began franchising in 2002. The management team has extensive experience with the brand. Therefore, the risks associated with an unproven system or inexperienced management do not appear to be present.

Potential Mitigations

• A business advisor can help you assess the franchisor's track record and the stability of its business model over its long history.
• It is wise to review the management team's experience in Item 2 with your attorney.
• Speaking with long-standing franchisees can provide insight into the system's evolution and support consistency.

Explanation

This risk was not identified. The business model is based on hamburgers and french fries, a long-established and staple category within the restaurant industry, not a product or service that appears to be a short-term trend or fad.

Potential Mitigations

• A business advisor can assist in researching the long-term consumer demand and competitive landscape for fast-casual burger restaurants in your specific market.
• Reviewing the franchisor's history and menu evolution in Item 1 and Item 11 can provide insight into their adaptability.
• It is also prudent to develop a business plan that accounts for local competition.

Explanation

This risk was not identified. Item 2 shows that the key executives of Five Guys have extensive, long-term experience with the brand and within the franchise industry, with many serving in their roles for over a decade. The risk of operational or strategic errors due to an inexperienced management team appears low.

Potential Mitigations

• Your business advisor can help you review the backgrounds of the management team listed in Item 2.
• It is always a good practice to ask current franchisees about their direct experiences with the leadership team's competence and vision.
• In discussions with the franchisor, inquire about their long-term strategic plans for the brand.

Explanation

Item 1 notes that a minority portion of the parent company's stock is held by Big Horn, L.P., a limited partnership. While this is not a controlling private equity ownership, the presence of an institutional investor could influence decisions. However, the founding family appears to remain in key management roles, which may balance the focus between short-term returns and long-term system health.

Potential Mitigations

• Your attorney should help clarify the governance structure and the influence of the minority investor.
• It's beneficial to ask current franchisees if they have observed any changes in franchisor focus or support related to this investment.
• A business advisor can help research the investor's track record with other portfolio companies if that information is available.

Explanation

This risk was not identified. Item 1 and Item 21 provide detailed information about the parent company, Five Guys Holdings, Inc., and its complex affiliate structure. Audited financial statements for the parent company are included in Exhibit A, providing a basis for financial assessment.

Potential Mitigations

• Having your attorney and accountant review the complex corporate structure outlined in Item 1 is essential to understand the relationships between the various entities.
• It is important to confirm with your attorney that the provided parent company guarantee is from the appropriate entity and is legally sound.
• An accountant should analyze the parent company financials to assess its ability to support its guarantee.

Explanation

This risk was not identified. Item 1 describes the predecessor franchisor, Five Guys Enterprises, LLC, and the 2017 securitization transaction that led to the creation of the current franchisor entity. The FDD appears to provide a clear lineage of the brand, and litigation and bankruptcy history for the predecessor are disclosed in Items 3 and 4.

Potential Mitigations

• A franchise attorney should review the information regarding predecessors in Items 1, 3, and 4 to ensure a full understanding of the system's history.
• When speaking with long-tenured franchisees, asking about their experience under the predecessor entity can provide valuable context.
• It is also wise to have your business advisor help assess how the transition has impacted the franchise system.