Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system has been shrinking over the past two years, not growing at a pace that might strain support resources. Uncontrolled growth can sometimes lead to a decline in the quality of support, training, and site selection assistance provided to franchisees, as the franchisor's infrastructure struggles to keep up with the expanding network.

Potential Mitigations

• It is still prudent to discuss the franchisor's long-term growth plans with a business advisor to understand future strategy.
• Your attorney should confirm that the franchisor’s obligations for support are clearly defined in the franchise agreement.
• Speaking with existing franchisees about their perception of the franchisor's capacity for support is a valuable exercise.

Explanation

This risk was not identified. Item 1 indicates the brand has been in operation since 1995 and franchising since 2009, making it an established system rather than a new or unproven one. Investing in a new franchise system can carry higher risks, as the business model, brand recognition, and support structures may not yet be fully developed or proven in the marketplace.

Potential Mitigations

• A business advisor can still help you evaluate the brand's current market position and competitive strength despite its long history.
• Your attorney should review the franchisor's recent performance and any significant changes to the system that might impact its established model.
• An accountant can analyze the financial statements to confirm the stability that would be expected of a mature system.

Explanation

This risk does not appear to be present. The franchise operates in the well-established restaurant industry, focusing on wings, burgers, and tacos. These are mainstream food categories with a long history of consumer demand, not a business model based on a recent or potentially fleeting trend. Investing in a fad business can be risky, as your long-term contractual obligations may outlast the short-term peak in consumer interest.

Potential Mitigations

• A business advisor can help you assess the long-term consumer trends in the casual dining and wings segments.
• Your accountant should model financial projections based on sustained, realistic demand rather than short-term hype.
• Seeking legal counsel regarding exit strategies in the franchise agreement is wise, regardless of the business model's stability.

Explanation

This risk was not identified in the FDD. Item 2 details the business experience of the management team, showing that key personnel have extensive backgrounds in the restaurant industry and with the large parent company, FAT Brands. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and an underdeveloped operational system.

Potential Mitigations

• It is still beneficial to have your business advisor research the recent performance and reputation of the executives listed in Item 2.
• Your attorney can help you formulate questions for current franchisees about their direct experiences with the management team's competence and support.
• An accountant can analyze whether the company's financial performance reflects experienced and effective management.

Explanation

This risk was not identified. The franchisor's parent, FAT Brands, Inc., is disclosed in Item 1 as a publicly-traded company, not a private equity firm. While any corporate owner will focus on financial returns, the specific risk profile of a private equity owner—often characterized by short-term investment horizons, high leverage, and potential for rapid changes to prioritize exit value—is not present here.

Potential Mitigations

• A financial advisor can help you analyze the performance and strategy of the publicly-traded parent company, FAT Brands, Inc.
• Your attorney should still review the assignment clauses in the franchise agreement to understand what happens if the company is sold.
• Engaging a business advisor to discuss the potential impacts of a corporate parent on a franchise system can provide valuable context.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the franchisor's parent company, FAT Brands, Inc., and its ultimate parent. The financial statements for the franchisor entity, Hurricane AMT, LLC, are provided in Exhibit A as required. Proper disclosure of parent companies is crucial for a franchisee to assess the overall stability and structure of the organization they are joining.

Potential Mitigations

• An accountant should still review the provided financials carefully, noting the relationship and financial interdependencies with the parent company.
• Your attorney should confirm that all necessary guarantees or support agreements from the parent are properly documented in the FDD.
• A business advisor can help you research the parent company's reputation and its management of other subsidiary franchise brands.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states that the franchisor has had no predecessors in the last ten years. A predecessor is a company from which the franchisor acquired a major portion of its assets. A history with predecessors can sometimes hide past issues like litigation, bankruptcy, or high franchisee turnover that could be relevant to a prospective franchisee's decision.

Potential Mitigations

• Your attorney can help you verify the corporate history of the franchisor to confirm the information disclosed in Item 1.
• It is still wise to ask long-tenured franchisees about the history of the brand and any ownership changes prior to the last ten years.
• A business advisor can help you research the overall history of the Hurricane brand, even if there are no legal predecessors to the current franchisor entity.