Explanation

The risk that a franchisor may grow too quickly, potentially straining its ability to provide adequate support, was not specifically identified in the FDD package. However, rapid growth in any system can stretch resources thin. A prospective franchisee should always evaluate whether the franchisor's support infrastructure, as detailed in Item 11, appears robust enough to handle the number of new units being added, as shown in Item 20.

Potential Mitigations

• Your accountant should review the franchisor's financials in Item 21 to assess if they have the resources to support their stated growth plans.
• Discussing the franchisor's capacity and plans for scaling its support infrastructure with your business advisor can provide valuable insight.
• Inquiries directed to your attorney about the franchisor's contractual obligations for support are an important step in your due diligence.

Explanation

HDOS has been offering franchises since 2014, and its executives are part of the large, experienced FAT Brands portfolio. Therefore, the specific risks associated with a new or unproven franchise system are not present. However, you should still evaluate whether the parent company's management style and broad portfolio are a good fit for your business goals, as this will influence system direction and support.

Potential Mitigations

• A business advisor can help you research the history and reputation of the parent company, FAT Brands, and its management team.
• Even with an established system, speaking with franchisees about their experiences with management is a crucial due diligence step.
• Your attorney should review the FDD to understand the full history of the franchisor and any predecessors.

Explanation

This risk was not identified in the FDD package. The Hot Dog on a Stick concept has been in operation since 1946, indicating it is not a new or trendy business that might quickly fall out of favor. A key consideration for any franchise is whether the core product has sustained consumer demand. A long history suggests market durability, which is a positive factor for a long-term investment.

Potential Mitigations

• Assess the long-term market demand for the product in your specific local area with the help of a business advisor.
• Review the franchisor's plans for innovation and menu development in Item 11 to see how they adapt to changing tastes.
• An accountant can help you evaluate the financial stability of businesses with long operational histories.

Explanation

The risk of the franchisor having inexperienced management was not identified. The executive team described in Item 2 holds positions across the larger FAT Brands portfolio, which includes numerous established restaurant franchises. This suggests that the management team has extensive experience in both the restaurant industry and in managing franchise systems. Their experience across multiple brands is a key factor in the system's operation.

Potential Mitigations

• A business advisor can help you research the specific track record of the key executives listed in Item 2.
• Speaking with existing franchisees about their direct experiences with the management team's competence and support is advisable.
• Your attorney should confirm that the management structure described is stable and has clear lines of responsibility.

Explanation

The risk of non-disclosure of a parent company was not identified. The FDD clearly discloses in Item 1 that HDOS is a subsidiary of HDOS Brands, which is ultimately owned by FAT Brands, Inc. However, the provided financials in Item 21 are for HDOS Franchising, LLC, the direct franchisor, and do not include financials for the ultimate parent, FAT Brands. This means the financial health of the overall enterprise is not fully visible in this document.

Potential Mitigations

• Your accountant should locate and review the public financial filings of the ultimate parent, FAT Brands, Inc., for a complete picture of financial health.
• Consulting your attorney is important to understand the legal relationship and any financial guarantees between the parent and the franchisor subsidiary.
• A financial advisor can help you assess the risks and benefits of being part of a large, multi-brand holding company.

Explanation

This risk was not identified in the FDD package. Item 1 discloses a detailed history of predecessors and acquisitions leading to the current ownership structure under FAT Brands. Items 3 and 4 do not indicate any bankruptcy history or undisclosed litigation related to these predecessors that would suggest a hidden negative history. The complexity of the corporate history, however, still warrants careful review.

Potential Mitigations

• A thorough review of the corporate history in Item 1 with your attorney is crucial to understanding the brand's lineage.
• A business advisor can help you research the public reputation of any predecessor entities mentioned.
• You might ask long-term franchisees about their experiences under previous ownership structures.