Explanation

This risk was not identified in the FDD package. KF Tea Franchising LLC was formed in 2013, with predecessors dating to 2010, and now has nearly 400 outlets. The system is established and not new. Even with an established brand, you should always assess its current market position and long-term viability before investing.

Potential Mitigations

• A business advisor can help you analyze the brand's current market share and competitive landscape.
• Discuss the brand's plans for future evolution and innovation with the franchisor.
• Your accountant can review financial trends to assess the long-term health of the established system.

Explanation

This risk was not identified. The FDD describes a business focused on brew tea and bubble tea, a beverage category that has shown sustained consumer demand and has become mainstream. While market tastes can change, the core business does not appear to be based on a short-term or novelty trend. A prospective franchisee should still evaluate local market competition and long-term consumer interest.

Potential Mitigations

• Engaging a business advisor to conduct a local market analysis can help confirm demand for this type of beverage shop.
• Speaking with long-standing franchisees about how they have adapted to changing consumer tastes is a valuable exercise.
• Your financial advisor can help assess the business model's resilience against economic downturns.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive, long-term experience with KF Tea or its affiliates, many since 2013 or earlier. This indicates a stable management team that is deeply familiar with this specific business and franchise system. An experienced management team can be a significant asset to a franchise system.

Potential Mitigations

• A business advisor can help you research the public reputation and track record of the management team.
• It is still prudent to ask current franchisees about their perception of management's competence and vision.
• Your attorney can confirm the backgrounds of the key individuals listed in Item 2.

Explanation

This risk was not identified in the FDD package. According to Item 1, the franchisor and its affiliates do not appear to be owned by a private equity firm. The risks often associated with PE ownership, such as a focus on short-term profitability over system health or frequent reselling of the brand, do not seem to be present here.

Potential Mitigations

• Your attorney can help you verify the ownership structure detailed in Item 1 and the corporate filings.
• Asking the franchisor about their long-term vision for the brand is a useful step in your due diligence.
• A business advisor can help you understand the potential impacts of any future sale of the franchise system.

Explanation

This risk was not identified. Item 1 and Item 21 disclose a complex structure of affiliated companies, but it does not appear that a required parent company's existence or financials have been hidden. The relationships between KF Tea, its trademark-holding affiliate, and its primary supplier affiliate are described. The complexity itself, however, warrants a careful review.

Potential Mitigations

• Your accountant should be tasked with analyzing the disclosed financial statements and footnotes concerning related-party transactions.
• Have your attorney map out the corporate web and explain the legal relationship and obligations between you and each entity.
• A business advisor can help you ask targeted questions about the operational role of each affiliate.

Explanation

This risk was not identified. Item 1 of the FDD discloses a predecessor entity, Mars Holding Group Inc., and an affiliate predecessor, KF Tea USA Inc. There is no indication of hidden negative history associated with these entities in the litigation or bankruptcy disclosures (Items 3 and 4). A clear history is a positive factor, though due diligence is always recommended.

Potential Mitigations

• Your attorney can confirm that the predecessor disclosures comply with franchise law requirements.
• Asking long-tenured franchisees about their experiences under any previous ownership can provide valuable historical context.
• A business advisor could assist with public records research on the predecessor companies if concerns arise.

Explanation

This risk was not identified. Item 3 discloses one lawsuit initiated by the franchisor against a franchisee for trademark infringement, which is not unusual. Importantly, there is no disclosure of a pattern of lawsuits brought by franchisees against the franchisor alleging fraud, misrepresentation, or other systemic issues. The absence of such litigation is a positive indicator.

Potential Mitigations

• Your attorney should still review the details of any disclosed litigation to understand its implications.
• Conducting due diligence by speaking with current and former franchisees is a good way to uncover any unreported disputes.
• A business advisor can help you search for online reviews or news articles that might mention franchisee dissatisfaction.