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How much does Heuk Hwa Dang cost?
Initial Investment Range
$303,500 to $505,000
Franchise Fee
$58,000 to $67,000
We offer franchises for the operation of Heuk Hwa Dang Outlets offering premium tea and dessert menu items, including, but not limited to, brown sugar bubble teas, smoothies, ice creams, coffees, sandwiches, and other related food products and services.
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Heuk Hwa Dang March 28, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 22, 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
Wunam F&C USA, Inc. (Wunam F&C) explicitly warns in the "Special Risks" section that its financial condition questions its ability to provide support. Financials show a history of losses, low stockholder equity, and declining revenue in 2024. A state regulator also imposed a deferral of franchise fees due to this condition. This may impact Wunam F&C's ability to support your business or grow the brand.
Potential Mitigations
- An experienced franchise accountant must perform a detailed analysis of the financial statements, including footnotes and revenue trends.
- A discussion with your business advisor is needed to assess if the franchisor has sufficient capital to fulfill its support obligations.
- Your attorney should investigate the implications of the state-mandated fee deferral and what protections it offers.
High Franchisee Turnover
High Risk
Explanation
Item 20 and Exhibit F show that two franchisees ceased operations in 2024. As there were only two franchised outlets at the start of that year, this represents a very high rate of turnover. This could indicate significant challenges within the system, potentially related to profitability, operational support, or the business model itself, posing a substantial risk to your investment.
Potential Mitigations
- It is critical to contact the former franchisees listed in Exhibit F to understand why they ceased operations; your attorney can help frame questions.
- A frank discussion with the franchisor about the reasons for this high turnover is necessary before making any commitment.
- Your business advisor can help you assess if the issues leading to these closures have been resolved.
Rapid System Growth
Low Risk
Explanation
This risk was not identified, as the system is new and has not experienced rapid growth. In some franchises, very fast expansion can strain the franchisor's ability to provide adequate support. You should still verify the quality of support with existing franchisees, but rapid growth itself is not a current concern here.
Potential Mitigations
- Asking current franchisees about the quality and responsiveness of the support they receive is a prudent step, which your business advisor can guide.
- Your attorney can help you understand the support commitments detailed in the Franchise Agreement.
- In conversations with the franchisor, inquire about their future growth plans and how they intend to scale their support systems.
New/Unproven Franchise System
High Risk
Explanation
The franchisor explicitly states in the "Special Risks" section that it has a short operating history, making it a riskier investment. The system is very new, having started franchising in 2022, and has a small number of outlets with a high turnover rate. This lack of a proven track record increases the risk of unforeseen operational challenges and potential instability for your business.
Potential Mitigations
- Engaging a business advisor to rigorously vet the founders' experience and the long-term viability of the business model is crucial.
- It is essential to speak with all current and former franchisees to understand the real-world challenges of operating in a new system.
- Your accountant should carefully assess the franchisor's capitalization to determine if it can sustain the system through its early stages.
Possible Fad Business
Medium Risk
Explanation
The business focuses on premium bubble tea and desserts, a market segment that can be influenced by rapidly changing consumer trends. As a new franchisee, you face the risk that the concept's popularity could decline while your long-term contractual obligations remain. It is important to assess the brand's potential for sustained demand beyond current trends.
Potential Mitigations
- A business advisor can help you conduct independent market research on the long-term sustainability of the premium bubble tea market.
- Question the franchisor on their plans for product innovation and menu adaptation to stay ahead of market trends.
- Analyzing local competition and consumer demand with a real estate professional is advisable before selecting a location.
Inexperienced Management
Medium Risk
Explanation
Item 2 indicates key executives have been with the US entity only since its 2019 formation. While they have experience with the parent company in Korea, their direct experience managing a franchise system within the United States appears limited. This could lead to challenges in navigating the specific legal, operational, and market landscapes of the US, potentially affecting the quality of support you receive.
Potential Mitigations
- A business advisor can help you probe the management team's specific experience with U.S. franchise operations and support.
- Speaking with current and former U.S. franchisees is essential to gauge the quality and relevance of the support provided by management.
- Your attorney should review the franchisor's contractual support obligations to ensure they are clearly defined.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified, as the franchisor does not appear to be owned by a private equity firm. In some cases, PE ownership can lead to a focus on short-term profits over the long-term health of the system. While not a risk here, understanding the goals and stability of the parent company is still important.
Potential Mitigations
- In discussions with the franchisor, it is still prudent to inquire about the parent company's long-term vision for the brand.
- Your business advisor can help research the parent company's track record and stability in its home market.
- Consulting an attorney to review any clauses related to the sale or transfer of the entire franchise system is always a wise step.
Non-Disclosure of Parent Company
Medium Risk
Explanation
While the FDD discloses a parent company, "Wunam F&C Korea," it does not include the parent's financial statements. Since the US franchisor has a limited operating history and weak financials, and the parent is a key supplier, the absence of the parent's financial data makes it difficult to fully assess the overall financial stability and backing of the entire system.
Potential Mitigations
- Your attorney should inquire why the parent company's financials are not provided, especially given the franchisor's own financial condition.
- A franchise accountant should help you assess the risks associated with relying on a franchisor whose financial backing is not fully transparent.
- Investigating the parent company's reputation and stability in its home market can provide some context, a task your business advisor could assist with.
Predecessor History Issues
Low Risk
Explanation
The FDD states that the franchisor has no predecessors. Therefore, this specific risk of inheriting undisclosed historical problems from a prior entity is not present. Your due diligence should focus on the current franchisor's operating history and performance.
Potential Mitigations
- Your attorney should confirm the corporate history to ensure there are no entities that should have been disclosed as predecessors.
- With your business advisor, focus your due diligence on the current franchisor's brief history and the experiences of its first franchisees.
- An accountant's review of the existing financial statements will provide insight into the current entity's performance.
Pattern of Litigation
Low Risk
Explanation
Item 3 of the FDD discloses no material litigation involving the franchisor, its predecessors, or its management. The absence of lawsuits alleging fraud, misrepresentation, or significant contract breaches is a positive indicator, though it does not eliminate other potential business risks.
Potential Mitigations
- A business advisor may still recommend searching public court records as part of comprehensive due diligence.
- Speaking with former franchisees can sometimes reveal disputes that did not escalate to formal litigation.
- Your attorney can confirm that no litigation history is a positive sign but does not guarantee future performance.
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
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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
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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
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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
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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
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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
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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