Explanation

The FDD shows no history of franchised outlets in the United States. While this means there is no negative turnover data, it also signifies a complete lack of a U.S. track record. You will be one of the first, if not the first, franchisees in a new system, which carries its own set of risks regarding unproven operations, support, and market acceptance.

Potential Mitigations

• Your business advisor should help you evaluate the inherent risks of joining a new, unproven franchise system in the U.S.
• Ask your attorney to negotiate for protections, such as performance milestones or a larger territory, to offset the risks of being an early adopter.
• It is crucial to develop comprehensive financial projections with your accountant, as there is no historical franchisee data to rely upon.

Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support to all franchisees. It is a potential sign that the franchisor may be prioritizing expansion and franchise fee revenue over the long-term health and success of its individual operators, which can lead to diminished support quality and operational challenges for everyone in the system.

Potential Mitigations

• Reviewing the franchisor's growth plans and support infrastructure with a business advisor can help assess their capacity for sustainable expansion.
• An accountant can analyze whether the franchisor's financial resources are sufficient to support its stated growth objectives.
• Speaking with your attorney about contractual commitments for support levels can provide a baseline for what to expect as the system grows.

Explanation

This risk was not identified in the FDD package. The business model, a gastropub, is a well-established concept in the food and beverage industry and does not appear to be based on a short-term trend. However, it's always important to assess the long-term consumer demand for any business concept. A business tied to a fad can face declining sales once public interest shifts, while your contractual obligations remain.

Potential Mitigations

• A business advisor can help you research the long-term market trends for gastropubs in your specific geographic area.
• Discussing the franchisor's plans for menu innovation and concept evolution with them can provide insight into their long-term vision.
• Your accountant can help model financial scenarios based on potential shifts in consumer dining preferences.

Explanation

This risk was not identified in the FDD package. Ownership by a private equity firm can introduce a focus on short-term financial returns over the long-term health of the franchise system. This might lead to increased fees, reduced franchisee support, or a quick resale of the franchise system, creating uncertainty for franchisees. Understanding the ownership structure is important for assessing the franchisor's long-term strategic direction.

Potential Mitigations

• Investigating the franchisor's ownership structure and the track record of any parent company is a key due diligence step for your business advisor.
• An attorney can review clauses related to the sale or transfer of the franchise system to understand your rights in such an event.
• Discussing any ownership-related concerns with current franchisees can provide valuable real-world perspective.

Explanation

This risk was not identified in the FDD package. A franchisor's predecessor is a prior entity from which the current franchisor acquired the business. Reviewing the history of predecessors is important because it can reveal inherited issues, such as past litigation, bankruptcies, or high franchisee turnover, that may still affect the health and reputation of the system you are considering joining.

Potential Mitigations

• Careful review of Item 1 of the FDD with your attorney is necessary to identify any disclosed predecessors.
• If predecessors exist, a business advisor can help you conduct independent research on their operational and legal history.
• Speaking with long-tenured franchisees about their experiences under any previous ownership provides valuable historical context.

Explanation

This risk was not identified in the FDD package. The Franchisor discloses in Item 3 that there is no material litigation required to be disclosed. A clean litigation history is a positive sign, but does not eliminate all risk. It is still important to conduct due diligence, as not all disputes result in litigation that requires FDD disclosure.

Potential Mitigations

• A key part of due diligence is to ask current and former franchisees about their experiences and satisfaction levels with the franchisor.
• Your attorney can help you understand what types of litigation require disclosure, and what might not be included in Item 3.
• Performing online searches for news articles or discussions about the franchise can sometimes reveal disputes that haven't reached the litigation stage.