Explanation

This risk was not identified in the FDD package. The data in Item 20 does not indicate that The HBH Franchise Company, LLC (HBH) is expanding at a pace that might outstrip its support capabilities; in fact, the system has seen a small net decline in franchised units over the last three years. Rapid growth can strain a franchisor's resources, leading to inadequate support for franchisees.

Potential Mitigations

• Understanding the franchisor's growth strategy and corresponding support infrastructure plan is a key discussion to have with your business advisor.
• When reviewing any franchise, it is wise to ask existing franchisees about the quality and timeliness of the support they currently receive.
• An accountant can help assess if a franchisor's financial statements show sufficient investment in support staff and systems to match its growth.

Explanation

This risk was not identified in the FDD. HBH began franchising in 1998 and, according to Item 20, has over 200 franchised outlets. This indicates it is a mature and established franchise system, not a new or unproven one. Investing in a new system carries higher risks due to unproven operations, undeveloped support, and minimal brand recognition.

Potential Mitigations

• For any franchise, a business advisor can help you investigate the franchisor's history and the track record of its operating system.
• Speaking with the earliest-opening franchisees listed in Item 20 can provide valuable insight into the system's evolution and stability.
• Your accountant can review the financials of any system to assess its long-term viability and capitalization.

Explanation

This risk does not appear to be present. The Honey Baked Ham concept, specializing in hams, turkeys, and prepared meals, has been in business for many decades and is a well-established brand in the American food landscape. It is not considered a business based on a recent or likely fleeting trend. Fad businesses carry a high risk of failure once consumer interest fades.

Potential Mitigations

• It is always prudent to have a business advisor help you research the long-term consumer demand and market stability for any industry you consider entering.
• Assessing a company's history of innovation and adaptation can provide clues about its ability to remain relevant over time.
• Your accountant can help you model the financial resilience of a business concept through various economic cycles.

Explanation

This risk was not identified in the FDD. Item 2 shows that the management team has significant prior experience in leadership roles at major national corporations, including The Coca-Cola Company, Papa John's, and Wingstop. This level of experience in large-scale food service and retail operations suggests a sophisticated management team. Inexperienced leadership can pose a risk to a franchise system's stability and support quality.

Potential Mitigations

• A business advisor can help you research the backgrounds of the key executives for any franchise system you are evaluating.
• When speaking with existing franchisees, it is useful to ask about their direct experiences with the management team's competence and support.
• Your attorney can review the executives' work history as disclosed in Item 2 for any potential red flags.

Explanation

This risk was not identified in the FDD package. According to Item 1, HBH is part of The Honey Baked Ham Company, LLC corporate structure, which appears to be a long-standing family of operating companies rather than a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand and its franchisees.

Potential Mitigations

• Your attorney can help you investigate the ownership structure of any franchisor to determine if a private equity firm is involved.
• If a PE firm is the owner, a business advisor can help research the firm's reputation and track record with other franchise brands.
• It is wise to ask franchisees about any changes to the system that have occurred since an acquisition by new ownership.

Explanation

This risk does not appear to be present. Item 1 clearly outlines the parent company structure, identifying The Honey Baked Ham Company, LLC as the ultimate owner of the system and marks. Audited financials for the franchisor entity, The HBH Franchise Company, LLC, are provided. There is no indication that required parent company financials have been withheld.

Potential Mitigations

• An accountant can help you determine if parent company financial statements are required for disclosure based on FTC rules.
• If a parent company guarantees the franchisor's obligations, your attorney should ensure a copy of that guarantee is included in the FDD.
• A business advisor can help you understand the relationships and dependencies between a franchisor and its parent or affiliates.

Explanation

This risk was not identified in the FDD package. Item 1 discloses that HBH acquired its license from a predecessor, but Items 3 and 4 do not indicate any negative history, such as significant litigation or bankruptcy, associated with that predecessor. A history of problems with a predecessor can sometimes indicate unresolved issues that may affect the current franchise system.

Potential Mitigations

• Your attorney should always carefully review disclosures in Items 1, 3, and 4 for any mention of predecessors and their legal or bankruptcy history.
• Speaking with long-term franchisees can provide insight into the system's performance under previous ownership.
• A business advisor can help you research the history of a brand if it has been transferred between different owners.