Explanation

As a new franchise system that began offering franchises in 2023 and has no operational franchised units as of the FDD's date, there is no history of franchisee turnover to analyze in Item 20. While this specific risk is not present in the data, the absence of data means there is no track record to evaluate system health or franchisee satisfaction. Monitoring this data in future FDDs will be critical for assessing system stability.

Potential Mitigations

• Your business advisor should help you understand the heightened risks associated with joining a new system lacking a performance track record.
• Ask the franchisor about their long-term franchisee support and retention strategies, a topic your attorney can help you explore.
• Once franchisees exist, speaking with them about their experience will be a crucial step your business advisor can facilitate.

Explanation

This risk was not identified in the FDD package. Rapid growth can strain a franchisor's ability to provide adequate support to its franchisees. A sudden explosion in the number of new outlets can outpace the development of training, marketing, and operational support systems, potentially harming the quality and value of the franchise for everyone in the system. As this system is new, this is a factor to monitor in future FDDs.

Potential Mitigations

• In any franchise, it is wise to ask the franchisor about their strategic growth plans and how they intend to scale support systems.
• Your business advisor can help you assess if the franchisor's support staff and infrastructure seem adequate for their projected growth.
• Engaging with a range of franchisees, from new to established, can provide insight into the consistency of franchisor support.

Explanation

This risk was not identified as a primary concern in the FDD package. A 'fad' business is one tied to a short-lived trend, which can create significant risk for franchisees who are locked into long-term agreements. While any new concept carries some uncertainty, the business model of offering eclectic topped fries, wings, and bowls is within an established restaurant sector. However, the long-term sustainability of any specific concept is a crucial consideration for any investment.

Potential Mitigations

• Your business advisor should help you conduct independent market research to assess the long-term consumer demand for this specific restaurant concept.
• Question the franchisor about their plans for future product innovation and menu development to adapt to changing consumer tastes.
• A financial advisor can help you model the financial performance under various market scenarios to test the concept's resilience.

Explanation

This risk was not identified in the FDD package. Private equity ownership can sometimes lead to a focus on short-term profitability over the long-term health of the franchise system. This was not found to be a factor for TLF Holdings based on the disclosures in Item 1. The company appears to be owned and operated by its founding principals.

Potential Mitigations

• In any franchise review, it is a good practice for your attorney to verify the ownership structure detailed in Item 1.
• If a franchisor is owned by a private equity firm, a business advisor can help you research the firm's track record with other brands.
• Understanding the franchisor's long-term vision, regardless of ownership, is a key piece of due diligence.

Explanation

This risk was not identified in the FDD package. The franchisor does not appear to have a parent company. TLF Holdings Inc. is presented as the primary entity. When a franchisor is a subsidiary, the financial health of a parent company can be critical, and its non-disclosure may hide risks. That does not appear to be the case here.

Potential Mitigations

• Your attorney can help you verify the corporate structure of the franchisor to confirm the absence of an undisclosed parent company.
• In cases where a parent company does exist, your accountant should always review the parent's financial statements if they are provided or required.
• It is prudent to understand any guarantees or support provided by a parent entity to a subsidiary franchisor.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. The absence of a predecessor means the history of the company starts with the current entity, which is consistent with the disclosures of it being a new system.

Potential Mitigations

• In any FDD review, your attorney should confirm the predecessor history disclosed in Item 1.
• When predecessors exist, it's important for your business advisor to help research their history for any red flags.
• A lack of predecessors in a new system is normal, but it reinforces the need for due diligence on the new entity itself.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." The absence of a pattern of litigation, particularly claims of fraud or misrepresentation from other franchisees, is a positive indicator. However, as a new system with no franchisees yet, there has been limited opportunity for such disputes to arise.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and its potential implications.
• It is a good practice to conduct independent searches for litigation involving the franchisor or its principals, which your attorney can assist with.
• With any franchise, discussing the franchisor's relationship with franchisees is a key part of due diligence calls.