Explanation

This risk was not identified in the FDD package. The data in Item 20 shows a significant net decrease in the number of franchise units over the last three years, not rapid growth. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here may not be a negative factor, though the system's shrinkage presents its own separate risks.

Potential Mitigations

• Engaging a business advisor can help you analyze the system's size and trajectory to understand its market position.
• Your accountant should review the franchisor's allocation of resources to support functions relative to its size.
• Legal counsel can help you understand the support obligations the franchisor is contractually required to provide, regardless of system size.

Explanation

This risk was not identified. Long John Silver's (LJS) is a well-established brand that has been operating and franchising since 1969. A long history suggests that the business model is not unproven and has endured various economic cycles, though this does not guarantee future success. A mature system should have well-developed operational standards and support structures.

Potential Mitigations

• Your business advisor can help you research the brand's history and its performance in different economic climates.
• An accountant can analyze how the franchisor's financials reflect its maturity and stability over time.
• Reviewing the history of the brand with your attorney can provide context for the current state of the franchise agreements.

Explanation

This risk was not identified. The quick-service seafood restaurant concept is a long-standing segment of the restaurant industry and not considered a short-term fad. Long John Silver's has operated for many decades, indicating a level of sustained consumer demand. The primary risk is not that the concept is a fad, but relates to its current competitive positioning and operational success.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer trends in the quick-service restaurant industry.
• Your attorney can review the franchise agreement for term length to ensure it aligns with a long-term business investment.
• Discuss market positioning and competition with your financial advisor to assess the concept's ongoing viability.

Explanation

This risk was not identified in the FDD. Item 2 discloses a management team with extensive and relevant experience in the restaurant and franchise industries. Many executives have long tenures with major brands such as Papa John's and Chipotle, or have been with Long John Silver's for a significant period. This suggests the leadership has substantial operational and franchising knowledge.

Potential Mitigations

• You might still ask current franchisees about their direct experiences with the management team's effectiveness and support.
• Your business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• Discussing the management team's stability and strategic vision with your financial advisor can provide additional insight.

Explanation

This risk was not identified. The FDD's Item 1 clearly identifies the parent company, LJS Partners, LLC, and the ultimate parent, Four Oaks Partners, LLC. Furthermore, the audited financial statements for the parent, LJS Partners, LLC, are included in Item 21 as Exhibit F, and a Guaranty of Performance from the parent is also provided. This level of disclosure appears to be compliant and transparent.

Potential Mitigations

• Your attorney should confirm that the provided parent company guarantee is legally sufficient and enforceable.
• An accountant can review the parent company's financials to ensure they demonstrate the ability to back the franchisor's obligations.
• It is good practice to have a business advisor help you understand the complete corporate structure and how it might affect you.

Explanation

This risk was not identified in the FDD. Item 1 discloses the franchisor's history, including its conversion from an Inc. to an LLC and its acquisition from a prior owner (Yum! Brands). No significant negative history associated with these predecessors is noted in the litigation or bankruptcy disclosures in Items 3 and 4. The corporate history appears to be transparently presented.

Potential Mitigations

• Your attorney can help you understand the timeline of ownership and any lingering obligations from predecessor entities.
• Speaking with long-tenured franchisees could provide historical context on the system's evolution under different owners.
• A business advisor can assist in researching the public reputation and history of any predecessor companies mentioned.

Explanation

This risk was not identified. Item 3 of the FDD states, 'No litigation is required to be disclosed in this Item.' This indicates that in the last fiscal year, there has been no litigation of the type the FTC requires to be disclosed, such as actions alleging franchise law violations, fraud, or significant cases filed by the franchisor against franchisees. This is generally a positive indicator.

Potential Mitigations

• It is wise to have your attorney conduct an independent public records search for litigation involving the franchisor as an added precaution.
• You should still ask current and former franchisees about any disputes they may have had, even if they didn't result in litigation.
• A business advisor can help you research the franchisor’s reputation in the franchise community.