Explanation

This risk was not identified. Item 20 data does not indicate a period of excessively rapid expansion that might strain the franchisor's support systems. A sustainable growth rate can be a positive sign, suggesting the franchisor is not overextending its resources. However, it is still important to verify the quality of support with existing franchisees.

Potential Mitigations

• During your due diligence calls, asking current franchisees about the quality and timeliness of franchisor support is always a valuable exercise.
• Your business advisor can help you assess the franchisor's capacity to support any future growth plans they may have.
• An accountant should review the franchisor's financials to ensure they have the capital structure to support their stated objectives.

Explanation

This risk was not identified in the FDD package. The franchisor has been offering franchises since 2012 and the system has more than 50 outlets, indicating it is an established brand, not a new or unproven startup. An established system often has more developed support structures and brand recognition, which can be beneficial for a new franchisee.

Potential Mitigations

• A business advisor can help you research the brand's reputation and competitive position within its market segment.
• Speaking with long-term franchisees can provide insight into how the system has evolved and matured over time.
• Your attorney can confirm the length of the franchisor's operating history as stated in Item 1.

Explanation

The business is focused on French pastries, with a heavy emphasis on macarons. While these are popular items, a business centered on a specific trendy product can face risks if consumer tastes change. The market is acknowledged as highly competitive. However, the brand's decade-plus operating history suggests a degree of sustained demand beyond a short-term fad.

Potential Mitigations

• A business advisor can help you research the long-term market trends for specialty desserts and assess the concept's staying power.
• You should evaluate the franchisor's plans for product innovation and menu diversification to adapt to changing consumer preferences.
• Your financial advisor can help model the financial impact of potential shifts in market demand.

Explanation

This risk was not identified. Item 2 indicates that the key executives have been with the company for over a decade and possess significant experience in the pastry shop industry and in managing the franchise system. Experienced leadership can be a major asset, potentially leading to better strategic decisions, more effective support, and a more stable franchise system.

Potential Mitigations

• When speaking with current franchisees, it is still worthwhile to inquire about their perception of the management team's competence and vision.
• Your business advisor can assist in researching the public reputation and track record of the key executives.
• An attorney can help confirm the backgrounds of the management team as disclosed in Item 2.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. The ownership structure appears to be held by affiliated entities related to the founders. This can sometimes mean that leadership is more focused on the long-term health of the brand rather than short-term investor returns, which can be a positive for franchisees.

Potential Mitigations

• It is always wise to have your attorney review the ownership structure disclosed in Item 1 to fully understand who controls the franchise system.
• During due diligence calls, asking franchisees if they have noticed any changes in company philosophy or support can provide valuable insight.
• A business advisor can help research the parent company to confirm it is not a traditional private equity fund.

Explanation

This specific risk of non-disclosure was not identified, as Item 1 names a parent company. However, the FDD does not include financial statements for this parent entity. Given the franchisor's own weak financial position, the absence of parent financials makes it difficult to assess the overall financial strength backing the system.

Potential Mitigations

• Your accountant should highlight the risks of a franchisor with negative net worth whose parent company's financial status is unknown.
• Asking the franchisor directly for the parent company's financials or for an explanation of its financial support commitment is a key due diligence step.
• Your attorney can advise on the legal requirements for parent company financial disclosure in this situation.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any predecessors from which the franchisor acquired the business. This indicates a consistent history of the system under the current ownership group, which can provide more clarity and transparency for a prospective franchisee conducting due diligence.

Potential Mitigations

• Your attorney should always confirm the corporate history detailed in Item 1 to ensure there are no undisclosed predecessors.
• Reviewing the timeline of the business with your business advisor helps build a complete picture of its history.
• Speaking with long-term franchisees can provide color on the franchisor's history.