Explanation

As a new franchise system in the United States, there are no existing or former franchisees. Therefore, there is no franchisee turnover data to analyze in Item 20. While this means there is no history of negative turnover, it also means there is no track record of franchisee success or satisfaction to evaluate, which is a risk in itself.

Potential Mitigations

• Your business advisor should help you evaluate the risks of joining a new, unproven franchise system with no performance history.
• It is crucial to understand that without former franchisees to interview, a key source of due diligence is unavailable.
• An accountant can help you create financial projections with more conservative assumptions due to the lack of historical franchisee data.

Explanation

This risk was not identified in the FDD Package. The data in Item 20 shows that the franchise system is new and has not yet experienced any growth, rapid or otherwise. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here means this specific risk is not a current concern, though this could change if the system begins to sell franchises quickly.

Potential Mitigations

• It's wise to ask the franchisor about their future growth plans and the infrastructure in place to support new franchisees.
• Your business advisor can help you monitor the pace of system growth if you decide to invest.
• Periodically discussing the quality of support with other franchisees, should they exist in the future, is a good practice.

Explanation

This risk was not identified in the FDD Package. The franchise operates in the Asian-style restaurant sector, offering ramen and noodle dishes. This is a large, established segment of the restaurant industry, not a business model based on a recent or likely fleeting trend. Therefore, the long-term viability is not likely to be threatened by being a fad.

Potential Mitigations

• Assessing long-term consumer demand for any business concept with your business advisor is always a prudent step.
• You should still evaluate the concept's unique selling proposition and its resilience to changing local tastes.
• Reviewing the franchisor's plans for menu innovation with your business advisor can provide insight into their long-term strategy.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchisor is a subsidiary of a restaurant operating group, Paradise Group Holdings PTE LTD, not a private equity firm. This typically suggests a focus on long-term brand building rather than the short-term return objectives often associated with private equity ownership.

Potential Mitigations

• It is always a good practice to ask your attorney to verify the franchisor's ownership structure and identify the ultimate controlling parties.
• Understanding the long-term goals of the ownership group can provide valuable insight, a topic to discuss with your business advisor.
• Researching the parent company's history and reputation in its home market can offer clues about its operational philosophy.

Explanation

This risk was not identified in the FDD Package. The franchisor clearly discloses its parent company in Item 1. The FDD also includes audited financial statements for the franchisor entity and an auditor's report that explicitly discusses the financial support relationship with the parent, meeting disclosure requirements.

Potential Mitigations

• It is beneficial to have an accountant review the financial statements of the franchisor entity itself to assess its standalone health.
• Your attorney should review the nature of any guarantees or support agreements from the parent company.
• Understanding the legal and financial relationship between a franchisor and its parent is a key part of due diligence.

Explanation

This risk was not identified in the FDD Package. In Item 1, the franchisor explicitly states that it does not have any predecessors. This means you do not need to be concerned about potential inherited issues from a prior company that operated the franchise system.

Potential Mitigations

• Confirming the franchisor's corporate history and the absence of predecessors is a standard part of due diligence for your attorney.
• When a franchisor is new, as in this case, focus should shift to the experience of its management and parent company.
• A business advisor can help you research the history of the brand itself, even if there is no legal predecessor entity.

Explanation

This risk was not identified in the FDD Package. Item 3 states that there is no litigation that requires disclosure. The absence of a litigation history, especially lawsuits from franchisees alleging fraud or misrepresentation, is a positive factor, although it is also expected for a brand new franchise system.

Potential Mitigations

• Your attorney should still conduct an independent search for any litigation involving the franchisor or its principals as part of due diligence.
• While there is no history now, it is wise to be aware of the types of disputes that can arise in a franchise relationship.
• A business advisor can help you understand common points of conflict in franchise systems.