Haraz Coffee House
Initial Investment Range
$349,500 to $517,705
Franchise Fee
$79,500 to $87,000
The "Haraz Coffee House" franchise concept, a quick service coffee Cafe offering both in-Cafe seating and carry-out of Yemen grown coffee blends, espresso, teas and pastries and related items.
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Haraz Coffee House February 10, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor's audited financial statements reveal significant financial weakness. For the year ending July 31, 2024, Haraz Coffee House Franchising, LLC (Haraz LLC) reported a net loss of over $384,000 and a members' deficit (negative net worth) of over $401,000. This financial instability, also flagged as a 'Special Risk' by the franchisor, raises serious questions about its ability to support you, grow the brand, and remain a viable business partner.
Potential Mitigations
- A thorough review of all financial statements and footnotes with your accountant is essential to assess the franchisor's viability and dependence on new franchise fees.
- Understanding the implications of investing in a financially weak franchisor should be a key topic of discussion with your franchise attorney.
- Engage a business advisor to help you create contingency plans in case the franchisor fails to provide promised support due to financial constraints.
High Franchisee Turnover
Low Risk
Explanation
This specific risk was not identified in the FDD package. As a very new franchise system that only began offering franchises in 2023, there is not enough historical data in Item 20 to establish a pattern of high franchisee turnover. Monitoring this data in future FDDs will be important to assess franchisee satisfaction and system health over time.
Potential Mitigations
- Asking current franchisees about their satisfaction and future intentions can provide early insight into potential turnover issues; your business advisor can help frame these discussions.
- An accountant should help you model different scenarios to understand the sales levels required for profitability, a key factor in franchisee retention.
- Your attorney can explain how strong contractual protections might mitigate risks if the system later shows signs of high turnover.
Rapid System Growth
High Risk
Explanation
The FDD projects extremely rapid growth, with plans to add 28 new franchised outlets in the next fiscal year, a significant increase for a new system. This aggressive expansion, combined with the franchisor's disclosed net loss and negative net worth, creates a risk that its support infrastructure (training, site selection, operational assistance) may not be able to keep pace. This could lead to a decline in support quality for all franchisees.
Potential Mitigations
- Questioning the franchisor about their specific plans and budget for scaling their support staff and infrastructure is a critical step to take with your business advisor.
- Discussing the current quality and responsiveness of franchisor support with the initial group of operating franchisees can provide valuable insight.
- Having an accountant analyze the franchisor's financial capacity to fund the necessary support for such rapid growth is highly recommended.
New/Unproven Franchise System
High Risk
Explanation
Haraz LLC is a new franchisor, organized in January 2023, with a very limited operating history. As disclosed in the 'Special Risks' section, investing in such an early-stage system is inherently riskier than investing in a mature brand with a long, proven track record. The systems, marketing strategies, and franchisee support structures are new and may not be fully developed or tested in various market conditions, which could impact your potential for success.
Potential Mitigations
- A business advisor can help you conduct extensive due diligence on the viability of the business concept itself, independent of the franchise structure.
- Engaging an experienced franchise attorney is crucial to negotiate for greater protections in the franchise agreement to offset the higher risk.
- Speaking with the very first franchisees listed in Item 20 is essential to understand their initial experiences and the reality of the support provided.
Possible Fad Business
Medium Risk
Explanation
The business is centered on a unique product: coffee from the Haraz mountains in Yemen. While this creates a strong brand story, it could also represent a risk if the concept is tied to a niche market trend rather than sustained consumer demand. You should consider the long-term appeal of this specific coffee concept and its ability to compete against a wide array of established coffee brands if the novelty diminishes.
Potential Mitigations
- A business advisor can help you independently research the long-term market trends for specialty and single-origin coffee to gauge sustainability.
- Assessing the brand's adaptability and plans for menu innovation beyond its core product is an important discussion to have with the franchisor.
- Developing a business plan with your accountant that models performance under various consumer demand scenarios is a prudent measure.
Inexperienced Management
High Risk
Explanation
The franchisor's management team has limited experience in franchising. The founder's primary business experience prior to 2021 was in the long-haul trucking industry, and other key executives have only recently joined the company. A lack of deep franchising expertise can pose risks, as it may affect the quality of training, the effectiveness of support systems, and the overall strategic management of the franchise network as it grows.
Potential Mitigations
- A thorough investigation of the management team's specific experience in both the food service industry and in managing a franchise system is warranted.
- Your business advisor can help you assess whether the franchisor has compensated for its inexperience by hiring qualified franchise professionals or consultants.
- Speaking with current franchisees about the quality of management's guidance and support is a critical due diligence step.
Private Equity Ownership
Low Risk
Explanation
This specific risk was not identified in the FDD package. FDD Item 1 indicates the franchisor is privately owned by its founder, not by a private equity firm. This avoids risks often associated with PE ownership, such as a primary focus on short-term returns over the long-term health of the brand. However, this does not eliminate other financial or operational risks inherent in the business.
Potential Mitigations
- Your attorney can confirm the ownership structure of the franchisor during the due diligence process.
- It is still important to have your accountant review the franchisor's financials to assess its stability, regardless of ownership type.
- A business advisor can help you evaluate the long-term vision and commitment of the current ownership to the franchise system.
Non-Disclosure of Parent Company
Low Risk
Explanation
This specific risk was not identified in the FDD package. The franchisor discloses its affiliate structure in Item 1, including the parent/predecessor entity Village Qahwah, LLC, and affiliated suppliers. While the franchisor's own financials are weak, they do not appear to be withholding required information about a financially stronger parent company, as there is no indication one exists.
Potential Mitigations
- An attorney can help you understand the relationships between the franchisor and all its affiliates as disclosed in Item 1.
- An accountant's review of the financial statements in Item 21 can help determine if the franchisor is adequately capitalized on its own.
- Inquiring with a business advisor about the operational history of any parent or predecessor entities is a wise step.
Predecessor History Issues
Low Risk
Explanation
This specific risk was not identified in the FDD package. Item 1 identifies Village Qahwah, LLC as an affiliate that is the basis for the franchise system, effectively a predecessor. However, the FDD does not indicate any negative history, such as litigation or bankruptcy, associated with this predecessor entity in Items 3 and 4 that would be a cause for concern.
Potential Mitigations
- Your attorney should confirm the history of any predecessor entities disclosed in Item 1 of the FDD.
- A business advisor can assist in researching the public reputation and operational history of any predecessor companies.
- Speaking with long-term employees or customers of the predecessor's original location can sometimes provide useful context.
Pattern of Litigation
Low Risk
Explanation
This specific risk was not identified in the FDD package. Item 3 states that there is no litigation history that requires disclosure. This is a positive sign, but it is important to remember that the franchisor is a very new company, and significant litigation may not have had time to arise yet. Future FDDs should be monitored for any changes in litigation status.
Potential Mitigations
- Your attorney can perform a public records search to independently verify the absence of significant litigation against the franchisor or its principals.
- Asking current franchisees if they are aware of any disputes, even if not yet filed as lawsuits, can provide valuable information.
- A business advisor can help you assess other risk factors, as a clean litigation record is only one piece of the due diligence puzzle.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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