Explanation

This risk was not identified. The audited financial statements in Item 21 and Exhibit G show a financially healthy company with significant positive net worth, strong profitability, and a robust current ratio. The auditor's report is unqualified and contains no 'going concern' warning, which are positive indicators for a prospective franchisee.

Potential Mitigations

• A franchise accountant should still review the complete financial statements, including all footnotes, to confirm the franchisor's stability.
• Understanding the franchisor's financial health is important, so discussing their revenue trends and capitalization with your financial advisor is prudent.
• Your attorney can help you understand any financial assurance requirements, such as bonds or escrow, mandated by state regulators.

Explanation

This risk was not identified in the FDD package. The data presented in the Item 20 tables for the last three years shows consistent system growth with no franchisee terminations or non-renewals listed. The number of franchises that ceased operations for other reasons is very low compared to the total number of operating units, which may suggest a stable franchisee base.

Potential Mitigations

• It is wise to have your accountant help you analyze the data in Item 20 to calculate the actual turnover rate.
• Speaking with a number of current and former franchisees from the list in Exhibit I is a crucial step to verify the reasons for any departures.
• Your business advisor can help you compare the system's turnover rate against any available industry benchmarks.

Explanation

Item 20 data indicates the system has grown significantly in recent years. Rapid expansion can sometimes strain a franchisor's ability to provide adequate support to all units. However, this risk appears to be mitigated by the franchisor's strong financial position, as shown in Item 21, which suggests they may have the resources to scale their support infrastructure accordingly.

Potential Mitigations

• Asking the franchisor about their specific plans to scale support staff and systems to match unit growth is a recommended step.
• You should contact a diverse sample of franchisees, including newer ones, to inquire about the current quality and responsiveness of franchisor support.
• A business advisor can help you assess if the support systems described in Item 11 seem adequate for a rapidly growing brand.

Explanation

This risk was not identified. The franchisor, JINYA Franchise, Inc., began its franchising operations in 2012 and, according to Item 20, has a substantial number of franchised outlets. This history indicates it is an established system, not a new or unproven one, reducing risks associated with unvetted concepts or support structures.

Potential Mitigations

• When evaluating any franchise, it is crucial to investigate the system's history and the experience of its management team with a business advisor.
• Your accountant can assess the financial statements of any franchisor to determine if they have a track record of profitability and stability.
• An attorney should review the entire FDD for signs of an unproven system, such as a lack of operating history for company-owned outlets.

Explanation

This risk was not identified. The franchise operates in the Japanese ramen restaurant sector. While the popularity of ramen has grown, it has become an established and mainstream food category in many markets rather than a short-term or novelty trend. This suggests a more stable base of consumer demand compared to a fad-based business.

Potential Mitigations

• Engaging a business advisor to research the long-term consumer demand and market trends for the specific industry is always a prudent step.
• You should evaluate the franchisor's plans for menu innovation and brand adaptation to ensure long-term market relevance.
• Consider the business's resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

This risk was not identified. Item 2 of the FDD shows that the key executives have extensive and long-term experience with the JINYA brand, with most principal officers having been in their roles since 2012. This level of experience within the specific business and franchise system is a positive indicator for operational stability and knowledgeable leadership.

Potential Mitigations

• It is always a good practice to have your business advisor help you vet the backgrounds of the franchisor's key management personnel.
• Speaking with current franchisees can provide valuable insight into the quality and competence of the leadership team.
• Your attorney can help you research the professional history of the executives listed in Item 2 for any potential concerns.

Explanation

This risk was not identified. According to the financial statements in Exhibit G, the franchisor is owned by a single stockholder who is also the director. There is no indication in the FDD that the company is owned or controlled by a private equity firm. This structure may suggest a focus on long-term brand health rather than short-term investor returns.

Potential Mitigations

• Investigating the ownership structure of any franchise system is a critical due diligence step for your attorney to undertake.
• If a franchisor is owned by a private equity firm, it is important to research the firm's track record with other franchise brands with your business advisor.
• Understanding the ownership can provide insight into the franchisor's long-term strategic goals, a topic to discuss with your financial advisor.

Explanation

The financial statement footnotes in Exhibit G mention a parent company, JINYA Holdings, Inc., which is not explicitly described as the parent in Item 1 of the FDD. While the franchisor entity itself appears financially sound, this inconsistency can create some ambiguity about the complete corporate structure. Financial statements for the parent company are not provided.

Potential Mitigations

• A franchise attorney can assist you in requesting clarification from the franchisor regarding its full corporate structure and the role of any parent company.
• Your accountant can help assess any potential risks associated with the complex affiliate and parent company relationships disclosed in the financial statements.
• To better understand the business structure, consider working with your business advisor to map out all related entities.

Explanation

This risk was not identified. Item 1 of the FDD explicitly states that the franchisor has no predecessors that it is required to disclose. This means you are evaluating the direct history and performance of the current franchising company without the potential complication of inherited issues from a prior entity.

Potential Mitigations

• It is important for your attorney to always verify statements about a franchisor's history, including any predecessors mentioned in Item 1.
• If a predecessor exists, researching their business and legal history is a crucial due diligence step for a business advisor.
• When a franchisor has acquired a system from a predecessor, your accountant should analyze how that transition impacted the financials.