Explanation

This risk was not identified, as HTHM is a new franchise system in the United States with only one franchisee operating as of the FDD date and no history of turnover. High turnover is a critical red flag in established systems, often indicating issues with profitability, support, or the business model. You should monitor this data in future FDDs.

Potential Mitigations

• In future years, it will be crucial for your accountant to analyze the franchisee turnover rates disclosed in Item 20.
• Speaking with former franchisees, if any are listed in future FDDs, can provide valuable insight; your business advisor can help prepare questions.
• Your attorney should help you understand your rights if the franchisor's performance deteriorates, leading to high system-wide turnover.

Explanation

This risk was not identified. HTHM is a new system in the U.S. and is not currently experiencing rapid growth. While slow growth presents its own challenges, the specific risk of support systems being strained by adding too many franchisees too quickly is not present. Future growth should be monitored to ensure support keeps pace.

Potential Mitigations

• Should the system grow quickly, your business advisor can help you assess if the franchisor is scaling its support infrastructure adequately.
• It is wise to maintain open communication with other franchisees to gauge the quality of ongoing support as the system expands.
• An accountant can monitor the franchisor's financial statements in future FDDs for signs of investment in support services.

Explanation

This risk was not identified. The business model of providing prepared meals to seniors targets a growing demographic with a long-term need, rather than a temporary trend. The long-term success will likely depend on execution and competition rather than the sustainability of the core market demand itself.

Potential Mitigations

• A business advisor can help you research the long-term demographic trends in your specific territory to validate market demand.
• It's prudent to have your accountant help you analyze the competitive landscape and the financial sustainability of the business model.
• Your attorney should review the franchise agreement's term and renewal options to ensure they align with a long-term business plan.

Explanation

This risk was not identified. The key executives listed in Item 2 have significant experience in both the prepared meals industry through the parent company and in franchising with other systems. While the U.S. entity is new, the management team appears to have relevant experience, which is a positive factor for a new system.

Potential Mitigations

• Engaging a business advisor to help you assess the management team's specific plans for the U.S. market can be beneficial.
• When speaking with other franchisees, inquiring about their direct interactions with and the effectiveness of the management team is a valuable step.
• Your attorney can help verify if the disclosed experience aligns with the support obligations outlined in the franchise agreement.

Explanation

This risk was not identified. Item 1 indicates the franchisor is part of a large, family-founded international food company, apetito AG, not a private equity firm. This suggests a focus on long-term brand building rather than short-term financial returns, which can be a risk associated with private equity ownership.

Potential Mitigations

• It is still wise for your attorney to review the assignment clause in the franchise agreement to understand what happens if the company is sold in the future.
• A business advisor can help you research the corporate history and reputation of the parent company, apetito AG.
• Discussing any ownership changes or rumors with existing franchisees can provide helpful context.

Explanation

This risk was not identified. The FDD's Item 1 provides a detailed and transparent description of the franchisor's complex corporate structure, including its direct and ultimate parent companies. There is no indication that a controlling entity's identity or financial information is being improperly withheld.

Potential Mitigations

• An accountant should still review the financial statements and notes to understand the financial relationships and dependencies between the franchisor and its parent entities.
• Your attorney can help clarify the legal obligations, if any, of the parent company to support the franchise system.
• Engaging a business advisor to research the parent company's overall health and commitment to the U.S. market is a good practice.

Explanation

This risk was not identified. Item 1 of the FDD states that HTHM has no legal predecessors. While it has affiliates with operating history in other countries, the risk of inheriting undisclosed historical problems from a prior business entity in the U.S. is not present.

Potential Mitigations

• A business advisor can help you research the history of the affiliated brands in Canada and the UK to understand the overall track record of the parent company.
• Asking the franchisor about lessons learned from their international operations can provide useful context.
• Your attorney should confirm that the legal structure described in Item 1 accurately reflects the business history.

Explanation

This risk was not identified. Item 3 of the FDD discloses no history of litigation involving the franchisor, its predecessors, or its management that would require disclosure. The absence of litigation, especially claims of fraud or misrepresentation from other franchisees, is a positive indicator, though this is expected for a new system.

Potential Mitigations

• In the future, it is critical to have your attorney carefully review Item 3 for any new litigation, particularly franchisee-initiated lawsuits.
• A business advisor can help you research public records for any litigation that may not have met the disclosure threshold.
• Speaking with current and former franchisees, if any exist in the future, is a good way to learn about disputes that didn't result in formal litigation.