Explanation

This specific risk was not identified in the FDD package. Mr. Goodcents Franchise Systems, Inc. (Mr. Goodcents) has been franchising since 1991, indicating a long operational history. However, for any franchise, especially one with a new owner or concept, it is vital to assess its track record and brand recognition. An unproven system carries higher risks related to market acceptance, operational refinement, and franchisor stability, which could affect your potential for success.

Potential Mitigations

• For any franchise opportunity, a business advisor can help you conduct thorough due diligence on the founders' and management's industry experience.
• It is wise to speak with the earliest franchisees in a system to learn about their experiences and the franchisor's evolution.
• Assessing the franchisor's capitalization and financial stability with your accountant is a crucial step.

Explanation

This specific risk does not appear to be present. The Goodcents concept, centered on sandwiches and pasta, has been in operation since 1989. This indicates a business model with a long history in a well-established market segment, rather than one based on a recent or potentially fleeting trend. A key consideration for any business is whether it has long-term, sustainable consumer demand, as a franchise agreement will outlast a temporary fad.

Potential Mitigations

• When evaluating any franchise, your business advisor can help you research the long-term market demand for its core products or services.
• It is prudent to assess a franchisor's plans for innovation and adaptation to stay relevant in a competitive marketplace.
• A financial advisor can help you consider a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives, including the CEO and various directors, have extensive and long-term experience with the Goodcents system, some spanning over a decade. In any franchise, inexperienced management can pose a significant risk, potentially leading to weak support, poor strategic decisions, and an underdeveloped operational model. This does not appear to be the case here.

Potential Mitigations

• As a general practice, it is wise to vet the management team's background for relevant experience in both the industry and in managing a franchise system.
• Your business advisor can assist in evaluating whether the leadership team's skills align with the company's strategic goals.
• Speaking with existing franchisees is an excellent way to gauge their confidence in the current management team.

Explanation

This risk was not identified in the FDD package, as Item 1 indicates no parent company and does not mention private equity ownership. For any franchise, it is important to understand the ownership structure. Private equity ownership can introduce a focus on short-term returns, which may sometimes conflict with the long-term health of the franchisees and the brand. This can manifest as increased fees, reduced support, or pressure to use affiliated vendors.

Potential Mitigations

• Should you encounter a private equity-owned franchisor, researching the firm's track record with other franchise systems is advisable.
• A business advisor can help you analyze the potential impacts of a private equity ownership model.
• Speaking with franchisees who have operated under such ownership can provide direct insight into any changes in system direction.

Explanation

This risk does not appear to be present. Item 1 clearly states there is no parent company. The franchisor, Mr. Goodcents Franchise Systems, Inc., appears to be the primary operating entity, and its audited financial statements are provided. In some franchise systems, a thinly capitalized subsidiary might be the franchising entity, making the financial health of an undisclosed parent company crucial for assessing risk. That situation does not seem to apply here.

Potential Mitigations

• Your attorney should always verify the corporate structure to confirm there are no undisclosed parent companies or guarantors.
• If a parent company exists and provides guarantees, it is critical that an accountant reviews their financial statements for stability.
• Understanding the full corporate structure helps assess where the ultimate financial responsibility and operational control lie; a business advisor can help.

Explanation

This risk was not identified in the FDD package, as Item 1 states that the franchisor has no predecessors. When evaluating a franchise, it is important to review any predecessor history disclosed in Items 1, 3, and 4. A predecessor is a company from which the franchisor acquired the business, and its history could reveal underlying issues with the brand, such as past litigation or high franchisee failure rates, that may not be immediately apparent from the current franchisor's record alone.

Potential Mitigations

• Your franchise attorney should always carefully review any predecessor information disclosed in the FDD.
• If a system was acquired from a predecessor, independent research into that entity's history can provide a more complete picture of the system's health.
• A conversation with long-term franchisees who operated under a predecessor can offer invaluable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." This indicates a lack of recent, material legal actions involving the franchisor related to the franchise relationship, fraud, or other specified violations. A pattern of litigation, especially claims of fraud or misrepresentation brought by other franchisees, can be a significant red flag about the franchisor's practices and the system's health.

Potential Mitigations

• It is always a good practice to have your attorney review the litigation section (Item 3) of any FDD.
• You can ask your attorney to conduct independent legal research to see if there is any litigation history not required to be disclosed.
• Talking to current and former franchisees can sometimes reveal past disputes that did not result in formal, disclosable litigation.