Explanation

This risk was not identified. The franchise system has experienced moderate, rather than rapid, growth over the past three years according to Item 20. Rapid growth can sometimes strain a franchisor's ability to provide adequate support to all franchisees, so controlled expansion is often a positive sign for system stability.

Potential Mitigations

• Discuss the franchisor's future growth plans and how they intend to scale support systems with a business advisor.
• It's wise to ask current franchisees about their perceptions of the franchisor's support quality and responsiveness.
• An accountant can help review the franchisor's financial capacity to support both current and future franchisees.

Explanation

This risk was not identified. The franchisor, Lee's Sandwiches International, Inc. (Lee's Sandwiches), has been offering franchises since 2004, indicating it is a well-established system, not a new or unproven one. Investing in a mature system can sometimes offer more predictability and brand recognition compared to a startup franchise.

Potential Mitigations

• Even with a mature system, consulting a business advisor to understand its current market position and competitive landscape is beneficial.
• Inquire with long-term franchisees about how the system and franchisor support have evolved over time.
• Your attorney can still help review the franchise agreement for terms that may have become more restrictive over the years.

Explanation

This risk was not identified. The business model is centered on sandwiches, coffee, and baked goods, which are established food service categories with a long history of consumer demand. This suggests the business is not based on a short-lived trend or fad, which can be a risk for concepts with more novel or niche offerings.

Potential Mitigations

• It is still important to research the local market demand for this specific type of cuisine with a business advisor.
• Assess the level of local competition in the fast-casual sandwich and coffee space with a marketing consultant.
• Your accountant can help you project financial performance based on the specific competitive environment in your area.

Explanation

This risk was not identified. Item 2 shows that the key executives have extensive, long-term experience with the Lee's Sandwiches brand and its affiliates, with some holding leadership roles since the 1980s and early 2000s. An experienced management team can provide stability and a deep understanding of the business operations.

Potential Mitigations

• When speaking with current franchisees, you could inquire about their direct interactions with and perceptions of the management team.
• A business advisor can help you research the public reputation of the management team and the company.
• Your attorney can still review the agreement to understand the extent of management's contractual obligations to provide support.

Explanation

This risk was not identified. According to Item 1, the franchisor is a subsidiary of a closely-held entity with overlapping management rather than a private equity firm. This structure may suggest a focus on long-term brand health over the short-term return horizons often associated with private equity ownership.

Potential Mitigations

• Verifying the ownership structure and any recent changes with your attorney is always a good practice.
• A business advisor can help you understand the potential implications of the parent-subsidiary relationship.
• It's wise to ask current franchisees if they have noticed any changes in company culture or support related to the ownership structure.

Explanation

This risk was not identified. The FDD discloses in Item 1 that the franchisor is a wholly-owned subsidiary of LCJJ Holdings, Inc. The franchisor's own audited financial statements are provided, and there is no indication that a parent guarantee is necessary or that the parent's financials are required for a complete risk assessment.

Potential Mitigations

• Your accountant should review the provided financials to confirm the franchisor appears to be a financially viable, standalone entity.
• It is a good practice to have your attorney confirm that the disclosure of parent and affiliate relationships in Item 1 appears complete.
• A business advisor can help you map out the relationships between the franchisor, its parent, and its affiliates.

Explanation

This risk was not identified. Item 1 of the FDD does not disclose any predecessors from which Lee's Sandwiches acquired its business assets. This indicates the franchise system was developed internally by the current ownership, so there is no hidden history of prior system failures or issues to investigate.

Potential Mitigations

• Even without a predecessor, it is prudent to research the franchisor's complete history with a business advisor.
• Speaking with long-term franchisees can provide insight into the early history and evolution of the franchise system.
• Your attorney can confirm that the lack of a disclosed predecessor seems appropriate based on the information in Item 1.

Explanation

This risk was not identified. Item 3 discloses one recent litigation, which was a collection action initiated by the franchisor against a former franchisee that resulted in a judgment in the franchisor's favor. There is no disclosed pattern of litigation brought by franchisees alleging fraud or misrepresentation, which would be a more significant concern.

Potential Mitigations

• Discuss the nature of any disclosed litigation with your attorney to understand its implications.
• It can be useful to ask the franchisor for their perspective on any legal disputes.
• A business advisor can help you research public records for any litigation not required to be disclosed in the FDD.