Not sure if Hteao is right for you?
Take our 1-minute franchise matching quiz to get in touch with a Franchise Advisor that can match you with your perfect franchise based on your goals, experience, and investment range.
Take the Quiz & Get MatchedHteao
How much does Hteao cost?
Initial Investment Range
$88,500 to $1,902,250.93
Franchise Fee
$25,000 to $55,000
You will operate a retail store offering purified water, purified ice, bottled water, water containers, coffee, hot teas, a large selection of freshly brewed iced teas, fresh fruit, snacks, cold food, various retail products, and other related items under the name HTEAO.
Enjoy our complimentary free risk analysis below
Unlock the full risk analysis to access 9 more categories covering 100+ risks.
Hteao April 30, 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
The franchisor's audited financial statements for HTeaO FC, LLC (HTeaO) show significant and consecutive net losses of approximately $7.77 million in 2024 and $4.96 million in 2023. This history of operating losses indicates potential financial instability, which could affect HTeaO's ability to provide ongoing support, invest in the brand, and fulfill its obligations to you. This financial weakness is a critical risk factor for your investment.
Potential Mitigations
- Your accountant must conduct a deep analysis of the franchisor's financial statements, including cash flow, debt, and the specific reasons for the recurring net losses.
- In discussions with the franchisor, your business advisor should help you probe into their strategies for achieving profitability and ensuring long-term financial stability.
- Seeking legal counsel to understand if any financial performance bonds or escrow arrangements are required by the state is a prudent step.
High Franchisee Turnover
High Risk
Explanation
Item 20 data from 2022-2024 shows a total of 5 franchisee cessations and 7 units reacquired by the franchisor. While the overall percentage churn is not extreme, the consistent pattern of reacquisitions and stores ceasing operations suggests potential underlying issues with profitability or franchisee satisfaction in some locations. These figures warrant further investigation to understand why these franchisees exited the system under these circumstances.
Potential Mitigations
- A frank discussion with former franchisees, particularly those who ceased operations or were reacquired, is essential to understand their reasons for leaving.
- Engaging a business advisor to analyze the Item 20 data for trends over the three-year period can provide deeper insights.
- Your attorney can help you formulate targeted due diligence questions for the franchisor regarding the circumstances of these departures.
Rapid System Growth
Medium Risk
Explanation
The number of franchised outlets grew from 35 to 131 between the start of 2022 and the end of 2024. Such rapid expansion can strain a franchisor's resources, potentially leading to challenges in providing adequate and timely site selection assistance, training, and ongoing operational support to all franchisees. You may find that support resources are spread thin across the rapidly growing system, impacting your initial opening and ongoing operations.
Potential Mitigations
- Inquiring with recent franchisees about their experience with the timeliness and quality of the franchisor's support during their opening process is crucial.
- Your business advisor can help you assess whether the franchisor's support infrastructure, as described in Item 11, appears adequate for the current system size.
- It is advisable to ask the franchisor directly about their plans for scaling support services to match continued growth.
New/Unproven Franchise System
Medium Risk
Explanation
HTeaO FC, LLC was formed in late 2022 as a successor entity and is part of a multi-layered private equity ownership structure. The franchisor entity itself has a limited operating history, although its affiliates and management have experience. An unproven franchise system carries risks such as underdeveloped support structures and evolving operational standards, which could create uncertainty for your business.
Potential Mitigations
- A business advisor should help you conduct thorough due diligence on the track record of the parent companies and the management team's specific experience in franchising.
- Speaking with the earliest franchisees in the system can provide valuable perspective on how the franchisor's support has evolved.
- Your accountant should review the financials to assess if the system's viability depends more on ongoing royalties or on initial franchise fees.
Possible Fad Business
Low Risk
Explanation
This specific risk was not identified in the FDD package. A fad business is one tied to a fleeting trend, lacking long-term consumer demand. Investing in a fad carries the risk of business failure once public interest wanes, even if your contractual obligations to the franchisor continue. Assessing a concept's long-term market viability is a critical piece of due diligence.
Potential Mitigations
- Engaging a business advisor to conduct independent market research on the long-term consumer demand for the core products is recommended.
- Consider the business's adaptability and resilience to economic shifts and changing consumer tastes with your financial advisor.
- It would be beneficial to review industry reports to assess whether the market segment is growing, stable, or potentially shrinking.
Inexperienced Management
Medium Risk
Explanation
Item 1 states that the franchisor entity, HTeaO, has not operated a business of the type being franchised, though an affiliate has. While the executive team appears to have relevant industry experience, the franchising entity itself lacks a direct track record of running a store. This separation could create a disconnect between the franchisor's corporate decisions and the day-to-day operational realities faced by franchisees like you.
Potential Mitigations
- It is important to interview current franchisees about the quality and relevance of the operational guidance provided by the corporate team.
- A business advisor can help you assess the specific franchising experience of the key personnel listed in Item 2.
- Clarifying with the franchisor how the operational experience from their affiliate, TBevCo, LLC, is integrated into franchisee support and training would be insightful.
Private Equity Ownership
High Risk
Explanation
Item 1 discloses that HTeaO is part of a multi-layered ownership structure with a private equity firm as the ultimate parent. PE ownership can create pressure for short-term returns, which might lead to decisions such as increasing fees, reducing franchisee support, or a quick sale of the system. The Franchise Agreement gives HTeaO broad rights to assign the agreement, meaning the system could be sold to a new owner with different priorities.
Potential Mitigations
- With your business advisor, you should research the private equity firm's reputation and its track record with other franchise brands it has owned.
- Asking current franchisees if they have observed any changes in support or focus since the PE acquisition is a key due diligence step.
- Your attorney should review the assignment clauses to explain the potential impact of a future sale of the franchise system.
Non-Disclosure of Parent Company
Low Risk
Explanation
This specific risk was not identified in the FDD package. This risk arises when a franchisor is a subsidiary of a parent company but fails to disclose the parent or provide the parent's financial statements when required. This can obscure the true financial backing and stability of the franchise system. HTeaO does disclose its parent companies, and their financials are not required to be included in this case.
Potential Mitigations
- An attorney can help verify the franchisor's corporate structure and determine if parent company financial disclosures are legally required.
- If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing the parent's financial statements.
- Understanding the full corporate structure is a key part of due diligence a business advisor can assist with.
Predecessor History Issues
Low Risk
Explanation
HTeaO discloses that it is a successor to a predecessor entity. The FDD appears to provide the required information about this predecessor. This risk would be present if the FDD omitted or downplayed a predecessor's negative history, such as bankruptcies or significant litigation, preventing you from seeing a complete picture of the system's past challenges. Based on the document, this does not appear to be the case here.
Potential Mitigations
- A careful review of Items 1, 3, and 4 with your attorney is crucial to trace the full history of the franchise system and any predecessors.
- Independent research into a predecessor entity, assisted by your business advisor, can sometimes uncover additional information or context.
- Asking long-term franchisees about their experiences under any previous ownership can provide valuable historical perspective.
Pattern of Litigation
Low Risk
Explanation
This specific risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or franchisor-initiated suits against franchisees, can be a major red flag. It may indicate systemic problems with disclosures, profitability, or the franchisor-franchisee relationship. The absence of such disclosed litigation is a positive factor.
Potential Mitigations
- Your attorney should always carefully review the nature, frequency, and outcomes of any litigation disclosed in Item 3.
- Even with no disclosed litigation, asking current franchisees about any informal disputes within the system is a wise step.
- Independent online searches for news articles or legal cases involving the franchisor can sometimes reveal disputes not required to be disclosed in the FDD.
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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
Unlock Full Risk Analysis
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