Explanation

This risk was not identified as there are no current or former franchisees reported in Item 20. However, for established systems, high turnover can indicate franchisee dissatisfaction or lack of profitability. It's a key metric for assessing the health of a franchise system, but is not applicable here as the system is new.

Potential Mitigations

• While not applicable here, your attorney would typically advise reviewing Item 20 turnover data very carefully in any established system.
• Contacting former franchisees is a key due diligence step an experienced business advisor would recommend to understand why they left.
• An accountant can help analyze turnover rates against system size to spot potential red flags in other franchise opportunities.

Explanation

This risk was not identified, as Item 20 shows the system has not yet begun to grow. In other systems, rapid growth can strain a franchisor's ability to provide adequate support. While not a current risk, you should monitor the pace of growth if you join to see if support levels are maintained.

Potential Mitigations

• A business advisor can help you question a franchisor about its plans to scale support infrastructure to match projected growth.
• Engaging a franchise attorney is important to understand contractual support obligations if a system grows rapidly.
• Your accountant should review a franchisor's financials to assess if they have the resources to support rapid expansion.

Explanation

This risk was not identified. Lemonade and snack sales are a long-established business concept, not a temporary fad. The franchisor's affiliate has operated a similar business since 2011, suggesting a history of sustained consumer demand. This indicates a lower risk of the business model becoming obsolete due to shifting trends.

Potential Mitigations

• For any franchise concept, a business advisor can help you assess long-term market demand for its products or services.
• Reviewing a franchisor's plans for innovation and adaptation in Item 11 with your attorney is always a prudent step.
• Your financial advisor can help evaluate a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified, as Item 1 does not indicate that the franchisor is owned by a private equity firm. When PE firms own franchisors, there can be a focus on short-term profits over the long-term health of the brand and its franchisees. This is not a concern based on the provided disclosure document.

Potential Mitigations

• A business advisor can help research the ownership structure of any franchisor to identify potential private equity involvement.
• Your attorney would typically review Item 1 and assignment rights in the Franchise Agreement to assess risks from potential future sales.
• When PE ownership is present, speaking with franchisees about changes since the acquisition is a critical due diligence step.

Explanation

This risk was not identified. The FDD states in Item 1 that the franchisor, Lemon Love, does not have a parent company. Therefore, there is no concern about undisclosed risks related to a parent entity's financial health or influence.

Potential Mitigations

• It is always important for your attorney to review Item 1 to confirm the disclosed corporate structure.
• If a franchisor is a thinly capitalized subsidiary, an accountant should verify if parent company financials are provided as required.
• A business advisor can help investigate the relationships between the franchisor and any affiliated companies mentioned in the FDD.

Explanation

This risk was not identified as Item 1 explicitly states the franchisor has no predecessors. In cases where a franchisor has acquired a business from a predecessor, it is important to review the predecessor's history for any inherited issues, such as litigation or high franchisee turnover, which is not a concern here.

Potential Mitigations

• Your attorney should always confirm in Item 1 whether a franchisor has a predecessor.
• If a predecessor exists, a business advisor can help you research their history for any potential red flags.
• Reviewing a predecessor's litigation and bankruptcy history in Items 3 and 4 is a critical step your attorney would take.

Explanation

This risk was not identified, as Item 3 discloses no material litigation involving the franchisor, its affiliate, or its principals. For other franchises, a pattern of lawsuits, especially claims of fraud or misrepresentation from franchisees, would be a significant warning sign about the system's integrity and practices.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review any litigation disclosed in Item 3.
• It is wise to ask a business advisor to help conduct independent searches for litigation not disclosed in the FDD.
• If litigation is disclosed, discussing the cases with franchisees involved can provide valuable insight.