Explanation

This risk was not identified. The system is not experiencing rapid growth; rather, the data in Item 20 shows a complete contraction of the US franchise system in the most recent year. Rapid growth can strain a franchisor's ability to provide support, but the opposite trend is observed here, which presents a different, more severe set of risks related to system viability.

Potential Mitigations

• An accountant can help analyze the system's growth or contraction trends over the past three years using Item 20 data.
• Questioning the franchisor's management about their capacity to support their existing and planned new units is a key step your business advisor can help with.
• Your attorney should review the franchisor's support obligations as detailed in the Franchise Agreement.

Explanation

This risk was not identified. While any business can be subject to changing trends, the concept of children's cooking classes does not appear to be based on a short-term fad. However, long-term consumer demand can fluctuate. A business's viability depends on its ability to adapt and maintain relevance over the full term of the franchise agreement.

Potential Mitigations

• A business advisor can assist you in researching the long-term market demand and competitive landscape for children's enrichment programs.
• It is wise to evaluate the franchisor's commitment to innovation and curriculum development to ensure the brand stays relevant.
• Your financial advisor can help you assess the model's resilience to economic shifts and changes in consumer spending habits.

Explanation

This risk was not identified. Item 2 indicates that the key executives have prior experience in other franchise systems, such as Flip Flop Shops and Code Ninjas. While experience does not guarantee success, the management team is not new to the franchising industry. Assessing the quality and relevance of that experience is a key part of due diligence.

Potential Mitigations

• A thorough review of the management team's specific roles and successes in prior franchise systems should be conducted with your business advisor.
• It's prudent to ask current and former franchisees about their direct experiences with the management team's support and leadership.
• Your attorney can help you investigate the history and reputation of the other franchise brands listed in Item 2.

Explanation

This risk was not identified. Item 1 of the FDD does not indicate that the franchisor is owned by a private equity firm. The franchisor, Little Kitchen Academy USA, Inc., is disclosed as a wholly owned subsidiary of Little Kitchen Academy Ltd., a Canadian limited partnership. Understanding the ownership structure is still important for assessing long-term stability and objectives.

Potential Mitigations

• Researching a franchisor's ownership structure is a crucial step your business advisor can assist with to understand strategic priorities.
• Your attorney should review any clauses related to the sale or transfer of the franchise system to a new owner.
• Speaking with existing franchisees about any changes in direction or support since any ownership change can provide valuable insight.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose any predecessors for Little Kitchen Academy USA, Inc. The franchisor appears to be the original entity operating this system in the United States. Predecessor history is important as it can reveal past issues like litigation, bankruptcy, or high franchisee turnover under a previous owner.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate history to confirm the absence of any undisclosed predecessors.
• A business advisor can assist in researching the brand's history to see if it operated under a different name or structure previously.
• When a predecessor exists, it is critical to review its litigation, bankruptcy, and franchisee turnover history in Items 3, 4, and 20.

Explanation

This risk was not identified. Item 3 of the FDD states, 'No litigation is required to be disclosed in this Item.' While this is a positive sign, it only covers litigation that meets the specific disclosure requirements of franchise law. It does not mean no disputes have ever occurred. Diligence should still include speaking with former franchisees.

Potential Mitigations

• Your attorney can conduct independent searches for litigation involving the franchisor or its principals that may not have met the threshold for FDD disclosure.
• Engaging a business advisor to search for news articles or online discussions about the brand can sometimes reveal past disputes.
• Asking former franchisees about their experiences and reasons for leaving can provide insight that litigation records may not.