Explanation

This risk was not identified in the FDD Package. High franchisee turnover, indicated in Item 20, can be a major red flag suggesting systemic issues like franchisee unprofitability, inadequate support, or a flawed business model. It is a critical area for due diligence.

Potential Mitigations

• Your accountant should always analyze the tables in Item 20 to calculate the effective turnover rate over the past three years.
• Speaking with a significant number of former franchisees from the provided list is a crucial due diligence step a business advisor can help you prepare for.
• Your attorney can help you formulate questions for the franchisor about the reasons for any outlet closures or transfers.

Explanation

This risk was not identified in the FDD Package. Ford's Garage has been franchising since at least 2012 and has a substantial number of operating units. An unproven system presents higher risks, as the business model may not be validated, support systems can be underdeveloped, and brand recognition is minimal.

Potential Mitigations

• For any franchise, especially newer ones, a thorough review of the management team's prior experience in both franchising and the specific industry is essential.
• It is wise to have an accountant assess the capitalization of a new franchisor to ensure it has sufficient funds to support its initial growth phase.
• A business advisor can help you evaluate the long-term viability and market acceptance of a new franchise concept.

Explanation

This risk was not identified in the FDD Package. The Ford's Garage concept, based on a classic American restaurant theme combined with a famous automotive brand, does not appear to be tied to a short-term trend. A fad-based business carries the risk of declining consumer interest over time, which could leave you with a failing business bound by a long-term contract.

Potential Mitigations

• Always research the long-term consumer demand for any franchise's core products or services with the help of a business advisor.
• It's important to ask the franchisor about their strategy for product innovation and concept evolution to stay relevant over time.
• An accountant can help you model the financial risks associated with a business concept that has a potentially short life cycle.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key personnel of Vintage Hospitality Group, LLC (VHG) have extensive experience in the restaurant industry and, in some cases, with other franchise concepts. Inexperienced management can be a significant risk, as it may lead to inadequate support, poor strategic decisions, and underdeveloped operational systems.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you scrutinize the backgrounds of the key management team members listed in Item 2.
• It is a crucial due diligence step to speak with existing franchisees about the competence and responsiveness of the franchisor's management.
• Your attorney should verify if the franchisor has hired experienced franchise professionals to compensate for any lack of direct franchising experience among the founders.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is owned by Motor City Holdings, LLC, and does not disclose ownership by a private equity firm. Private equity ownership can introduce risks, such as a focus on short-term returns over the long-term health of the brand, which may impact franchisee support and profitability.

Potential Mitigations

• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm’s reputation and track record with other franchise systems.
• It is wise to ask current franchisees about any changes to the system, such as fee increases or reduced support, since a private equity acquisition.
• Your attorney should review the Franchise Agreement for terms that facilitate an easy sale of the franchise system by the owner.

Explanation

This risk was not identified in the FDD Package. The franchisor, Vintage Hospitality Group, LLC (VHG), discloses its parent company, Motor City Holdings, LLC. The FDD includes audited financial statements for VHG, providing financial transparency. Failing to disclose a parent company or its financials when required can obscure the true financial health and control structure of the franchise system.

Potential Mitigations

• When analyzing an FDD, your accountant should verify that if a parent company's guarantee is necessary for financial viability, the parent's financials are included.
• Your attorney can help you understand the legal relationship and obligations between a franchisor and its parent company.
• A business advisor can help investigate the reputation and track record of any parent company that has significant control over the franchisor.

Explanation

The franchisor, Vintage Hospitality Group, LLC, changed its name from ICON Restaurant Group, LLC in April 2024 but is the same entity. The FDD does not disclose any other predecessors from which it acquired the business. A history involving predecessors with significant litigation, bankruptcy, or high franchisee turnover could indicate inherited systemic problems for a prospective franchisee.

Potential Mitigations

• It is prudent for your attorney to review Item 1 carefully for any mention of predecessors.
• If a predecessor is identified, a business advisor can assist in researching public records for information about that entity's history.
• Asking long-term franchisees about their experience under any previous ownership can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "No litigation is required to be disclosed in this Item." A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a significant red flag about the franchisor's practices and the health of the franchise relationship.

Potential Mitigations

• Your attorney should always carefully review the nature, frequency, and outcomes of any lawsuits disclosed in Item 3.
• It's advisable to have your attorney perform an independent search for litigation involving the franchisor, as not all disputes may meet the FDD disclosure thresholds.
• A business advisor can help you discuss any disclosed litigation with current and former franchisees to understand the context.