Explanation

This risk was not identified. The franchise system is not experiencing rapid growth; in fact, Item 20 data shows the number of franchised and company-owned outlets has remained static for the last three years. Uncontrolled growth can strain a franchisor's ability to provide adequate support, but that does not appear to be a concern here.

Potential Mitigations

• While rapid growth isn't an issue, discussing the risks of a stagnant system with a business advisor is important for your due diligence.
• Your accountant can help analyze if the franchisor's financial model is sustainable without growth from new franchise sales.
• A conversation with your attorney about exit strategies is always prudent, regardless of system growth rates.

Explanation

This risk was not identified. The business concept, focusing on fresh burritos and California-Mexican cuisine, operates in a well-established segment of the fast-casual restaurant industry. This type of business is not generally considered a fad, as it has demonstrated sustained consumer demand over many years.

Potential Mitigations

• A business advisor can help you analyze the local competitive landscape for Mexican fast-casual restaurants.
• It's always wise to have your accountant help you create financial projections based on the specific market you plan to enter.
• Discussing long-term consumer trends with a marketing professional could provide additional insight into the business's future prospects.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives have been involved with the company since its inception in 2005. This long tenure suggests they have significant experience with this specific business concept, even if the franchise system itself remains small.

Potential Mitigations

• When speaking with current franchisees, it is a good practice to inquire about the quality and effectiveness of management's support and strategic direction.
• A business advisor can help you assess whether the management team's experience translates into a robust and supportive franchise system.
• Your attorney can help you understand the scope of the management team's obligations as outlined in the franchise agreement.

Explanation

This risk does not appear to be present. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. Franchisees in PE-owned systems can sometimes face pressures related to short-term investor return goals, which does not seem to be a factor here.

Potential Mitigations

• It is always a good idea to ask your attorney to verify the franchisor's ownership structure.
• A discussion with your business advisor can help you understand the pros and cons of different types of franchise ownership structures.
• Speaking with current franchisees can provide insight into the franchisor's long-term vision and commitment to the brand.

Explanation

The FDD does not indicate the existence of a parent company that has not been disclosed. The franchisor entity, Hot Harry's Fresh Burritos, Inc., appears to be the primary corporate entity, and its financial statements are provided as required. Therefore, risks associated with an undisclosed parent's financial instability or influence are not apparent.

Potential Mitigations

• Your attorney can confirm the corporate structure and ensure all relevant entities, including any guarantors, have been properly disclosed.
• An accountant's review of the provided financials can help verify that the disclosed entity has sufficient substance.
• A business advisor can help you research the company's history to check for any undisclosed relationships.

Explanation

This risk was not identified, as Item 1 of the FDD explicitly states that the franchisor has no predecessors. A prospective franchisee does not need to be concerned about inheriting historical problems, litigation, or negative brand equity from a prior entity.

Potential Mitigations

• During due diligence, it is still a good practice for your business advisor to research the brand's history to confirm it has always operated under the current entity.
• Your attorney can help verify the franchisor's corporate history through public records.
• Discussing the brand's origin and history with long-term employees or franchisees can provide additional context.

Explanation

This risk is not present. Item 3 of the FDD states that there is no litigation that requires disclosure. This is a positive sign, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about a franchise system's health and integrity.

Potential Mitigations

• Your attorney can conduct an independent search of public court records to verify the absence of significant litigation.
• Asking current and former franchisees about any past or pending legal disputes is a crucial part of due diligence.
• A business advisor can help you assess the overall health of franchisee-franchisor relations within the system.