Explanation

This risk was not identified in the FDD package. The Hangar 54 Pizza franchise operates in the well-established pizza industry, which is not typically considered a fad. However, it is always wise to assess whether a specific business concept has long-term consumer appeal or is tied to a short-lived trend, as your contractual obligations will continue even if public interest fades.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand for the specific type of products and services offered.
• When evaluating any franchise, it is prudent to discuss the system’s plans for innovation and adaptation with your financial advisor.
• Your attorney can review the franchise agreement to ensure you understand your long-term commitments.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the franchisor's management team has extensive and long-term experience with the parent company, Pro Food Systems, Inc., within the food service industry. In general, a lack of relevant industry or franchising experience in a management team can be a significant risk, potentially affecting the quality of support, training, and strategic direction.

Potential Mitigations

• It is always a good practice to research the professional backgrounds of the key executives of any franchise system you are considering.
• A conversation with your business advisor can help you evaluate the strength and experience of the franchisor's leadership team.
• Speaking with existing franchisees can provide valuable insight into their confidence in the management's capabilities, a step your attorney can help prepare you for.

Explanation

This risk was not identified in the FDD package. There is no indication in Item 1 that the franchisor is owned by a private equity firm. When this ownership structure exists, it can sometimes lead to a focus on short-term profitability over the long-term health of the brand and its franchisees, a factor that would require careful consideration.

Potential Mitigations

• Engaging a business advisor to research the ownership structure of a franchisor can reveal important information about its strategic priorities.
• If a franchisor were owned by a private equity firm, your attorney would advise you to investigate that firm's track record with other franchise brands.
• Your accountant can analyze financial statements for signs of strategies that might prioritize short-term investor returns over franchisee support.

Explanation

This risk was not identified in the FDD package. The franchisor's parent company, Pro Food Systems, Inc., is clearly disclosed in Item 1. When a franchisor is a subsidiary, it's important to understand the relationship with the parent, especially if the parent guarantees obligations or is a critical supplier. Failure to disclose a parent company can obscure a full understanding of the franchise system's financial backing and control structure.

Potential Mitigations

• Your attorney can help verify the corporate structure of a franchisor to ensure all parent companies and major affiliates are properly disclosed.
• If a parent company is involved, an accountant should review its financial statements, if provided, to assess its stability.
• A business advisor can help you understand the practical implications of the parent-subsidiary relationship on your franchise.

Explanation

This risk was not identified in the FDD package. Item 1 clearly states that Hangar 54 does not have a predecessor. For franchises that do have a predecessor, it is critical to review their history for any signs of past trouble, such as litigation, bankruptcy, or high franchisee turnover, as these issues could potentially carry over to the current franchisor.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review any disclosed predecessor history in Items 1, 3, and 4 of an FDD.
• If a predecessor exists, researching its history online and through franchisee interviews can provide valuable context.
• Your accountant can help analyze any available financial data from a predecessor to assess historical performance and stability.

Explanation

This risk was not identified in the FDD package, as Item 3 discloses no litigation. A pattern of lawsuits against a franchisor, particularly cases initiated by franchisees alleging fraud or misrepresentation, can be a major red flag. It may indicate systemic problems with the franchise offering or the franchisor's business practices.

Potential Mitigations

• It's a crucial step for your attorney to review any litigation disclosed in Item 3 and explain the nature and potential implications of the claims.
• A business advisor can help you understand if the volume or type of litigation is unusual for a system of its size and age.
• If litigation is disclosed, discussing the issues with current and former franchisees can provide valuable firsthand perspectives.