Explanation

This specific risk was not identified, as the franchise system is new in the United States with insufficient operating history to show a pattern of franchisee turnover. However, a lack of historical data means the long-term satisfaction and success rate of franchisees is unproven. High turnover in established systems can signal underlying problems with profitability or support.

Potential Mitigations

• A conversation with your business advisor about the risks inherent in a new system with no turnover data is essential.
• Your attorney should advise on negotiating stronger contractual protections to offset the risks of an unproven system.
• In-depth discussions with the very first U.S. and Canadian franchisees, as listed in the FDD, are critical to gauge their initial satisfaction.

Explanation

This risk was not identified in the FDD package. The system is new in the U.S. and has not yet shown a pattern of rapid growth. Unchecked rapid expansion can strain a franchisor's ability to provide adequate training, site selection assistance, and ongoing operational support to all franchisees. This can lead to decreased service quality and potential struggles for new owners in the system.

Potential Mitigations

• Discussing the franchisor's growth plans and their capacity to scale support infrastructure is a valuable conversation to have with your business advisor.
• Inquiring with existing franchisees about the current quality and responsiveness of franchisor support can provide important insights.
• An accountant should review the franchisor's financials in Item 21 to assess if they appear to have the capital to support future growth.

Explanation

This specific risk was not identified. The business of providing prepared meals to seniors is a well-established market sector, not a new or trendy concept. However, any business's long-term success depends on its ability to adapt to changing consumer preferences and economic conditions. A business tied too closely to a fleeting trend faces the risk of declining demand once public interest wanes, potentially leaving you with a non-viable business.

Potential Mitigations

• Assess the long-term market demand for the product or service in your specific area with your business advisor.
• Evaluating the franchisor's plans for innovation and adaptation can provide insight into its long-term vision.
• Consider the sustainability of the business model beyond current trends with your financial advisor.

Explanation

This risk was not identified. The key executives of HTHM Franchising, LLC appear to have relevant experience. The President has experience within the parent company's similar franchise systems in the UK, and the Director of Franchise Development has extensive franchising experience, albeit in a different industry. Inexperienced leadership can pose a risk by failing to provide adequate support, proven systems, or effective strategic direction, which could negatively impact your business.

Potential Mitigations

• A business advisor can help you assess the depth and relevance of the management team's experience as disclosed in Item 2.
• Speaking with existing franchisees about their direct experiences with the leadership team's support and guidance is recommended.
• Clarifying with the franchisor who your primary operational support contacts will be is an important step.

Explanation

This FDD does not indicate that HTHM Franchising, LLC is owned by a private equity firm; it is part of a large, family-founded international corporate group (apetito AG). When a franchisor is PE-owned, there can be a risk of decisions prioritizing short-term investor returns over the long-term health of the franchise system. This could manifest as reduced franchisee support, pressure to use specific vendors, or a quick sale of the system.

Potential Mitigations

• It is always prudent to research the ownership structure of a franchisor, which your attorney can assist with.
• Should ownership change in the future, understanding your rights under the assignment clauses of the Franchise Agreement is critical.
• A business advisor can help you analyze the potential impacts of different ownership structures on a franchise system.

Explanation

The franchisor does not disclose any predecessors for the U.S. entity. Undisclosed or inadequately detailed predecessor history can be a risk, as it might hide past failures, litigation, or other problems associated with the brand or system before the current franchisor took over. A clean history with no predecessors, as is the case here, is generally a positive sign, but it also aligns with the franchisor being a new entity in the U.S.

Potential Mitigations

• An attorney can confirm the franchisor's corporate history and verify the accuracy of the 'no predecessor' disclosure.
• When a system is acquired from a predecessor, speaking with long-term franchisees who operated under the previous ownership is crucial.
• A business advisor can assist in researching the history of the brand and its operators in other countries.

Explanation

This risk was not identified in the FDD, as Item 3 states that no litigation is required to be disclosed. A pattern of litigation, particularly claims of fraud or misrepresentation brought by other franchisees, can be a major red flag. It may suggest systemic problems with the franchisor's sales process, business model, or franchisee relationships. Similarly, a high number of lawsuits initiated by the franchisor against its franchisees might indicate an overly aggressive or litigious culture.

Potential Mitigations

• Having your attorney conduct an independent search for litigation involving the franchisor or its affiliates is a prudent step.
• It is wise to ask current and former franchisees about any disputes they are aware of, even if not formally disclosed in Item 3.
• A clean litigation history is positive, but it should be considered alongside other factors like the system's age and size.