Explanation

This risk was not identified in the FDD Package. The franchise system is currently contracting, not expanding rapidly. However, overly rapid growth in other systems can strain a franchisor's ability to provide adequate training, site selection assistance, and ongoing operational support, potentially diluting brand quality and diminishing the value of the franchise for everyone.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you analyze the franchisor's growth rate in relation to its support staff and infrastructure.
• In discussions with any franchisor, it's wise to ask about their capacity and plans for scaling support to match unit growth.
• Your attorney can review the franchisor's contractual support obligations to ensure they are specific and enforceable.

Explanation

This risk was not identified in the FDD Package. Fuzzy's Taco Shop began franchising in 2008 and, as of the end of 2024, had 116 franchised outlets, indicating it is an established system. An unproven system, by contrast, would lack a significant operational history, established brand recognition, and a well-developed support structure, which increases the risk of business failure for early franchisees.

Potential Mitigations

• For any new franchise system, it is crucial to have a business advisor help you conduct extensive due diligence on the founders' and management's experience.
• An accountant should be engaged to scrutinize the capitalization and financial stability of any startup franchisor.
• Your attorney may be able to negotiate more favorable terms to compensate for the higher risk associated with an unproven brand.

Explanation

This risk was not identified in the FDD Package. The fast-casual Mexican food concept is a well-established and durable segment of the restaurant industry, not a temporary fad. A fad business is tied to a fleeting trend and lacks evidence of long-term consumer demand, posing a significant risk of failure once public interest wanes, even though your contractual obligations to the franchisor would continue.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any niche franchise concept.
• Inquiring about a franchisor's plans for innovation and adaptation beyond the current trend is a key part of due diligence.
• An accountant can help you model the financial risks of a business that may have a short lifecycle.

Explanation

This risk was not identified in the FDD Package. The management team disclosed in Item 2 includes executives with extensive experience at large, established companies such as Dine Brands (the parent company), IHOP, and Realogy. This level of experience suggests the leadership has a strong background in managing large-scale, and in some cases, franchised operations.

Potential Mitigations

• When evaluating any franchise opportunity, it's essential to have a business advisor help you vet the background of the key management team.
• Asking existing franchisees about the quality and responsiveness of the management team provides valuable, real-world insight.
• Your attorney can help you understand the implications if key executives have a history of litigation or bankruptcy.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly discloses the ownership structure, identifying FTO Strategic Company 1, LLC, FTO Holding Company, LLC, and ultimately Dine Brands Global, Inc. as parent companies. Failing to disclose a parent that guarantees obligations or controls the system can hide significant financial or operational risks from a prospective franchisee.

Potential Mitigations

• Your attorney should always verify the corporate structure if there's any ambiguity about a controlling parent entity.
• If a parent company provides a guarantee, it's vital that your accountant reviews the parent's financial statements.
• Understanding the full ownership structure is key to assessing where ultimate control and financial responsibility lie; a business advisor can assist.

Explanation

This risk was not identified in the FDD Package. Item 1 explicitly states, "We have no predecessors." While there was a change of ownership to Dine Brands, this is not a predecessor in the legal sense of the franchisor acquiring the assets of a different system. A predecessor's history could contain important information about past litigation, bankruptcies, or franchisee failures that would be material to your investment decision.

Potential Mitigations

• In any FDD, it's important for your attorney to review Item 1 carefully for any mention of predecessors.
• If a predecessor is identified, a business advisor can help you research its history for any red flags.
• Speaking with long-term franchisees who operated under a predecessor system can provide valuable historical context.