Explanation

This risk was not identified in the FDD package. Item 20 tables show no franchisee terminations, non-renewals, or cessations of business over the last three years. Generally, high turnover can be a significant red flag, indicating potential problems with the business model's profitability, franchisor support, or the overall franchisee-franchisor relationship. The stability shown here is a positive indicator, though it is based on a very small system size.

Potential Mitigations

• With your business advisor, you should still contact current and former franchisees from the lists in the FDD to discuss their experiences and satisfaction.
• An accountant can help you analyze the turnover data presented in Item 20 over the full three-year period to identify any trends.
• Your attorney can help you frame questions for the franchisor about the circumstances behind any future turnover.

Explanation

This risk was not identified. The FDD shows the system has been static, with no net change in the number of franchised or company-owned outlets for the past three years. While this avoids the risks of overstretched resources from rapid growth, it could indicate a stagnant brand with limited growth potential or demand for new franchises. This lack of growth is a different kind of risk to consider.

Potential Mitigations

• A discussion with your business advisor about the franchise's market position and growth strategy is prudent to understand its future potential.
• You should ask the franchisor about its plans for future system growth and brand development.
• Your accountant can review the financials to see if they reflect a company investing for growth or one that is stagnant.

Explanation

This risk was not identified. Good Stuff Franchising, LLC (Good Stuff LLC) was formed in 2013 and began franchising in 2014, giving it over a decade of operational history as a franchisor. While the system is small, it is not new or unproven. A newer system would typically present higher risks due to the lack of a long-term track record, potentially underdeveloped support systems, and minimal brand recognition.

Potential Mitigations

• It is always wise to have a business advisor help you conduct extensive due diligence on the franchisor's history and management's experience.
• Speaking with the earliest-joining franchisees can provide insight into how the system has evolved and matured.
• Your attorney can help you understand any unique risks associated with the franchisor's specific history.

Explanation

This risk was not identified. The business concept is centered on handmade burgers, fries, salads, and ice cream, which is a well-established and enduring segment of the restaurant industry rather than a fleeting trend. A fad-based business carries the risk that consumer interest will decline, potentially leaving you with a long-term contractual obligation for a business with a short-term appeal.

Potential Mitigations

• A business advisor can help you assess the long-term market demand and competitive landscape for the product or service in your specific area.
• It is beneficial to evaluate the franchisor's plans for menu innovation and adaptation to stay relevant over time.
• Consider the sustainability of the business model through various economic cycles with your financial advisor.

Explanation

This risk was not identified. Item 2 indicates that the principal executives have been with the company or its affiliates since at least 2008, suggesting a long tenure and significant experience in this specific business. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher potential for system-wide problems.

Potential Mitigations

• A business advisor can help you thoroughly vet the backgrounds and relevant industry and franchise experience of the entire management team.
• Engaging with existing franchisees provides a valuable opportunity to ask about the quality and responsiveness of management and the support team.
• Understanding the depth of the management team beyond the top executives is a useful exercise for your due diligence.

Explanation

This risk was not identified, as Item 1 indicates the franchisor is a privately held LLC and does not appear to be owned by a private equity firm. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system, potentially leading to increased fees, reduced support, or a quick resale of the brand.

Potential Mitigations

• It's always prudent to have your attorney help you understand the complete ownership structure of the franchisor as disclosed in Item 1.
• A business advisor can research the reputation and track record of any ownership group, whether private equity or family-owned.
• Discussing any recent or anticipated changes in ownership with existing franchisees can provide valuable insight.

Explanation

This risk was not identified. The FDD does not indicate the existence of a parent company for Good Stuff LLC. The franchisor provides its own audited financial statements as required. In cases where a franchisor is a thinly capitalized subsidiary, the failure to provide a parent company's financial statements can conceal the true financial stability and backing of the franchise system.

Potential Mitigations

• Your attorney can verify the franchisor's corporate structure to confirm the absence of any undisclosed controlling parent entity.
• If a parent company were involved, an accountant should review their financials, especially if they guarantee the franchisor's obligations.
• A business advisor can help you assess the operational independence and viability of the franchisor entity itself.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessor. When a franchise system has a predecessor, it is important to scrutinize that entity's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate inherited problems for the current system.

Potential Mitigations

• Your attorney should always carefully review Item 1 for any mention of predecessors and their operating history.
• If a predecessor exists, researching their public records and reputation can provide important context with the help of a business advisor.
• Asking long-term franchisees about their experiences under any previous ownership is a crucial due diligence step.

Explanation

This risk was not identified, as Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, is a significant red flag. Similarly, a high volume of litigation initiated by the franchisor against franchisees can suggest an overly aggressive or difficult relationship. The absence of such disclosures is a positive sign.

Potential Mitigations

• Your attorney should always review the details of any disclosed litigation in Item 3 to understand the nature and potential impact of the claims.
• Independent research for non-disclosed litigation involving the franchisor or its principals can sometimes be a valuable step for a business advisor.
• Discussing the franchisor's relationship with its franchisees, including how disputes are handled, is a key part of due diligence.