Explanation

This specific risk was not identified in the FDD Package. Rapid growth can strain a franchisor's ability to provide adequate support. Monitoring the ratio of support staff to franchisees is a key aspect of due diligence, as a system expanding too quickly may fail to meet its obligations to new and existing owners, potentially impacting your business's performance and success. Thoroughly checking the franchisor's capacity for support is a crucial step.

Potential Mitigations

• Your business advisor can help you analyze the system's growth rate in Item 20 against the franchisor's disclosed support infrastructure in Item 11.
• Discussing the quality and timeliness of support with a range of existing franchisees can provide valuable real-world insight.
• An accountant's review of the franchisor's financials can help assess if they have the capital to sustain growth without sacrificing support.

Explanation

This specific risk was not identified in the FDD Package. JJF SPV's predecessor has operated since 1993, and the system is large and established. An unproven system carries higher risks, including the potential for an untested business model, underdeveloped support systems, and minimal brand recognition. Evaluating the franchisor's operational history and the performance of its initial franchisees is a critical step for anyone considering a new franchise concept.

Potential Mitigations

• When evaluating a new system, it is crucial for your business advisor to assess the prior industry and franchising experience of the management team.
• An attorney can help you negotiate more favorable terms to compensate for the higher risk associated with an unproven franchise.
• Speaking with the very first franchisees of a new system can offer the most direct insight into the challenges and support provided.

Explanation

This specific risk was not identified in the FDD Package. The Jimmy John's concept of selling submarine sandwiches is a well-established segment of the fast-casual restaurant industry, not a temporary fad. A fad business, however, risks a sharp decline in consumer interest after an initial trend passes, potentially leaving you with a long-term contract for a business with limited viability. Assessing the long-term consumer demand for a product or service is a critical part of due diligence.

Potential Mitigations

• Your business advisor can help you research the long-term market trends for the specific industry to assess sustainable consumer demand.
• When analyzing any franchise, you should evaluate the franchisor's commitment to research, development, and innovation to stay relevant.
• It is wise to consider a business's resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

This specific risk was not identified in the FDD Package. FDD Item 2 lists executives with extensive experience in the quick-service restaurant industry and within the larger Inspire Brands portfolio. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a lack of proven operational systems. Assessing the leadership team's background is a key element of due diligence.

Potential Mitigations

• When reviewing any FDD, it is important to have a business advisor help you assess the franchising and industry-specific experience of the key executives listed in Item 2.
• Contacting existing franchisees provides direct feedback on the quality of management's support and leadership.
• Your attorney can help you investigate the franchisor's history and the track record of its management team.

Explanation

This specific risk was not identified in the FDD Package. Although not owned by a private equity firm, JJF SPV is an indirect subsidiary of Inspire Brands, which is majority-owned by funds managed by Roark Capital, a private equity firm. This ownership structure can influence decisions based on investor return timelines rather than long-term franchisee health. Such influence may affect fees, support levels, and the potential for the system to be sold.

Potential Mitigations

• Your business advisor should help you research the ownership structure and the parent company's track record with other franchise brands.
• It is important to discuss with existing franchisees whether they have observed any changes in franchisor behavior or support since the acquisition.
• Your attorney should review the assignment clause in the Franchise Agreement to understand your rights if the system is sold.

Explanation

This specific risk was not identified in the FDD Package. The franchisor discloses its parent companies, up to Inspire Brands, Inc. However, the financial statements provided are for the franchisor entity only. For a complete risk assessment, it is important to understand the financial health of parent companies, especially if they provide guarantees or are essential to the franchise system's operations, as their stability can directly impact the franchisor.

Potential Mitigations

• An accountant can help determine if parent company financial statements should have been included based on their role and the franchisor's structure.
• It is advisable to have your attorney investigate the corporate structure to understand the relationships and dependencies between the franchisor and its parents.
• Ask the franchisor about the financial health of its parent and any guarantees it provides to support the franchise system.

Explanation

This specific risk was not identified in the FDD Package. The FDD discloses that Jimmy John's Franchise, LLC (JJF) is its predecessor. It is crucial for a potential franchisee to understand the full history of a franchise system, including any challenges or issues that occurred under previous ownership. An incomplete disclosure of a predecessor's history could obscure past problems that may still affect the system.

Potential Mitigations

• Your attorney should carefully analyze the disclosed information about any predecessors in Items 1, 3, and 4.
• It is beneficial to speak with long-term franchisees who operated under the predecessor to understand the system's history and evolution.
• A business advisor can assist you in researching the predecessor's reputation and track record in the franchise industry.