Explanation

This specific risk was not identified in the FDD Package. Item 20 data, which tracks franchisee turnover, shows no terminations, non-renewals, or other departures. This is expected, as MJF is a new franchisor with only one unit operating. High turnover in an established system can be a major red flag indicating potential systemic problems, such as unprofitability or poor franchisor support. The absence of this data means there is no track record to evaluate.

Potential Mitigations

• Engaging a business advisor to monitor future Item 20 disclosures for any signs of increasing turnover is a prudent step.
• Maintaining open communication with other franchisees as the system grows can provide early warnings of any systemic issues.
• Your accountant can help you understand how to calculate and interpret turnover rates from future FDDs.

Explanation

This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support to all franchisees. Item 20 shows that MJF is in its earliest stages with only one franchise opened, so it is not currently experiencing this risk. However, you should monitor the pace of future growth against the franchisor's support infrastructure.

Potential Mitigations

• A business advisor can help you periodically assess whether the franchisor's support systems are keeping pace with new unit openings.
• It is wise to ask the franchisor about their strategic plan for scaling support staff and infrastructure as the system expands.
• Discussing the quality of support with a network of fellow franchisees can provide valuable real-time feedback.

Explanation

This risk was not identified in the FDD Package. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. According to Item 1, MJF is owned by its principal operators, not a private equity firm. Therefore, the specific risks associated with PE ownership, such as rapid fee increases or cuts in franchisee support to boost investor returns, do not appear to be present here.

Potential Mitigations

• A periodic review of Item 1 of future FDDs with your attorney can alert you to any changes in ownership structure.
• Building a strong relationship with franchisor management can provide insight into their long-term vision for the brand.
• Your business advisor can help you understand the different risks associated with various types of franchise ownership structures.

Explanation

This risk was not identified in the FDD Package. The franchisor is not a subsidiary of a larger parent company. Item 1 clearly identifies the franchisor, MJF, and its affiliate, The Lazy Daisy Country Gift Store, LLC. While the relationship between these two entities creates its own set of risks (such as the trademark license), the risk of an undisclosed parent company masking financial weakness or exercising hidden control is not present here.

Potential Mitigations

• It is still valuable for your attorney to review the corporate structure to confirm the relationship between the franchisor and any disclosed affiliates.
• Understanding the specific roles and obligations of each affiliated entity is an important discussion to have with your attorney.
• An accountant can help you analyze the financial health of any affiliates, especially if they are critical suppliers or licensors.

Explanation

This risk was not identified in the FDD Package. Item 1 discloses that the business concept originated with a predecessor sole proprietorship, which was then merged into the currently operating affiliate company. However, Items 3 and 4 do not disclose any negative history, such as litigation or bankruptcy, associated with this predecessor. Therefore, the risk of inheriting undisclosed historical problems from a predecessor does not appear to be a factor in this FDD.

Potential Mitigations

• Your attorney should always confirm the history of any predecessors mentioned in Item 1.
• When possible, asking long-term employees or contacts about the history of a business can provide additional context a business advisor may find useful.
• Ensuring a clean history in Items 3 and 4 for both the franchisor and its predecessors is a key due diligence step for your attorney to verify.

Explanation

This risk was not identified in the FDD Package. Item 3, which discloses past and pending litigation, states that there are no lawsuits required to be disclosed. A pattern of litigation, especially claims of fraud or breach of contract brought by franchisees, can be a major red flag about a franchisor's practices. The absence of such litigation is a positive sign, although it is expected for a brand-new franchise system.

Potential Mitigations

• Your attorney can conduct independent searches for litigation that may not have been disclosed in the FDD.
• Establishing a franchisee association in the future can help in collectively addressing any systemic issues that might otherwise lead to litigation.
• Regularly reviewing Item 3 in future FDDs is a good practice to monitor the legal health of the system.