Explanation

This risk was not identified in the FDD package. Item 20 tables show that no franchised outlets have been terminated, ceased operations, or were not renewed because the franchisor has not had any operating franchisees yet. Generally, a high rate of franchisee turnover is a critical warning sign that may indicate systemic problems, such as a lack of profitability or franchisee dissatisfaction. For this system, the risk is in its newness, not in a history of turnover.

Potential Mitigations

• With your business advisor, you can research typical turnover rates in the fast-casual restaurant industry to establish a baseline for future evaluation.
• Your attorney can help you formulate questions for the franchisor regarding their strategies to ensure long-term franchisee success and retention.
• Engaging an accountant to model different financial scenarios can help you understand the level of performance needed to ensure your own viability.

Explanation

This specific risk was not identified, as the franchise system is new with no existing franchisees and is just beginning its growth phase. However, a prospective franchisee should be aware that if a franchisor expands too quickly, its support systems can become strained. This may lead to inadequate training, site selection assistance, or operational guidance for new franchisees joining the system during a period of rapid expansion.

Potential Mitigations

• It is prudent to discuss the franchisor's controlled growth strategy and plans for scaling its support staff and infrastructure with a business advisor.
• Your attorney can help you ask for more specific service level commitments in the Franchise Agreement regarding support response times.
• An accountant should review the franchisor's financial resources to assess its ability to fund support systems for its projected growth.

Explanation

This risk was not identified in the FDD. The business model, a fast-casual restaurant offering Halal food like gyros and rice platters, appears to be based on an established and long-standing food service category rather than a recent or fleeting trend. In general, investing in a fad-based business can be risky because consumer interest may decline, potentially leaving you with a long-term contract for a business with waning demand.

Potential Mitigations

• Engaging a business advisor to research local market demand and long-term consumer interest in this restaurant category can validate its sustainability.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.
• A discussion with your attorney about the length of the franchise agreement term versus the long-term viability of the business concept is worthwhile.

Explanation

This risk was not identified. While the franchisor entity itself is new (formed in 2024), the key executives listed in Item 2 have several years of operational experience with affiliated companies, Hamza & Madina Corp. and HM Hicksville Corp., which have operated similar restaurant outlets since 2015. This prior, relevant industry experience may mitigate some of the risks typically associated with a new franchise management team.

Potential Mitigations

• A business advisor can help you assess how the management's prior operational experience might translate to supporting a franchise system.
• Formulating questions with your attorney to ask the franchisor about their transition from operating company-owned stores to supporting franchisees is advisable.
• During your due diligence, verifying the success and reputation of the affiliated operating companies can provide valuable insight.

Explanation

The risk of the franchisor being owned by a private equity firm was not identified in the FDD package. Item 1 indicates the franchisor is a standard limited liability company. Generally, private equity ownership can introduce a focus on short-term returns, which might lead to changes in fees, support levels, or a quicker sale of the franchise system, potentially affecting long-term franchisee interests.

Potential Mitigations

• Your attorney should always confirm the ownership structure of the franchisor as disclosed in Item 1.
• A business advisor can help you understand the potential impacts of different ownership structures on a franchise system's philosophy and operations.
• An accountant can help review financial statements for signs of financial strategies often associated with private equity ownership.

Explanation

This risk was not identified. The FDD discloses affiliate companies in Item 1 but does not indicate the existence of a parent company whose financials would be required for a full risk assessment. When a franchisor is a subsidiary of a larger parent, the parent's financial health can be crucial to the stability and support of the franchise system, and its non-disclosure could obscure important risks.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and determine if any undisclosed parent entities exist.
• If a parent company were involved, it would be crucial for your accountant to review its financial statements for a complete picture of the system's backing.
• A business advisor can assist in researching the relationships between the franchisor and any affiliated companies mentioned in Item 1.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessors from which Hamza & Madina acquired its assets or the franchise system. In cases where a system has a predecessor, it is important to investigate the predecessor's history for any signs of trouble, such as litigation or high franchisee turnover, as these issues could be inherited by the new franchisor.

Potential Mitigations

• Having your attorney review Item 1 is the first step to understanding the franchisor's history and lineage.
• When a predecessor is disclosed, a business advisor can help you research its history and reputation in the industry.
• If prior owners existed, speaking with long-term franchisees about their experience under the predecessor would be a key due diligence step.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation required to be disclosed. A pattern of lawsuits, especially claims of fraud or misrepresentation brought by other franchisees, can be a significant warning sign about the franchisor's practices and the health of the system. The absence of such litigation is a positive indicator, though it does not eliminate other risks.

Potential Mitigations

• Your attorney should always perform an independent search for litigation involving the franchisor, as not all disputes may meet the criteria for disclosure in Item 3.
• It is wise to ask existing franchisees in other systems about their experiences with franchisor disputes as part of your general due diligence.
• A business advisor can help you assess a franchisor's reputation, which can sometimes reveal conflicts that do not rise to the level of disclosed litigation.