Explanation

This risk was not identified in the FDD package. M BROWZ is a new franchisor and, according to Item 20, had no franchised outlets operating in the last three years. Therefore, there is no data on franchisee turnover. High turnover rates in an established system can signal significant problems, such as unprofitability or poor franchisor support, and should be carefully investigated by prospective franchisees.

Potential Mitigations

• Once the system has franchisees, a business advisor should help you analyze future Item 20 data to calculate turnover rates.
• When franchisees exist, an attorney can help you formulate questions to ask them about their satisfaction and the reasons any others may have left.
• Your accountant should review trends in franchisee unit data over several years to assess system stability.

Explanation

This risk was not identified in the FDD package. As a new franchise system with no operating franchisees, M BROWZ is not currently experiencing rapid growth. Should the system expand quickly in the future, it could strain the franchisor's resources, potentially leading to inadequate support for franchisees. Monitoring the pace of growth against the franchisor's capacity to support it is a key aspect of ongoing due diligence for any franchise investment.

Potential Mitigations

• If you join the system, a business advisor can help you monitor the franchisor's growth rate and assess if support levels remain adequate.
• Engaging with other franchisees as the system grows will provide insight into whether the franchisor is keeping pace with support needs.
• Your accountant can periodically review future financial statements to see if the franchisor is investing in support infrastructure.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that M BROWZ is owned by a private equity firm. This type of ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system. Since this is not the case here, this specific risk does not apply.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor you consider to understand their motivations.
• Your attorney should review the 'Assignment by Franchisor' clause in any franchise agreement to see how easily the system can be sold.
• It's good practice to ask other franchisees about any changes in support or culture following an ownership change.

Explanation

This risk was not identified in the FDD package. M BROWZ does not list a parent company in Item 1. Therefore, the issue of needing to see a parent company's financial statements to assess the overall health of the enterprise does not apply here. The financial stability risk is contained entirely within the franchisor entity itself.

Potential Mitigations

• When analyzing an FDD, your accountant should always check Item 1 for the existence of a parent or guarantor entity.
• If a parent entity exists and guarantees the franchisor's performance, your attorney should confirm if the parent's financial statements are required and provided.
• A business advisor can help you understand the relationships between a franchisor and its parent or affiliates.

Explanation

This risk was not identified in the FDD package. According to Item 1, M BROWZ Franchise LLC has no predecessors. The franchisor entity was newly formed to franchise the business concept that has been operated by an affiliate. Therefore, there are no predecessor-related issues such as past litigation, bankruptcies, or high franchisee turnover under a prior entity to consider.

Potential Mitigations

• For any franchise, it is important to have your attorney review Item 1 carefully for any mention of predecessors.
• If a predecessor exists, a business advisor should help you research their history and reputation.
• Speaking with long-term franchisees who operated under a predecessor can provide valuable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation must be disclosed. As a new franchisor with no operating franchisees, there is no history of legal disputes. In a mature system, a pattern of litigation, especially claims of fraud or misrepresentation brought by franchisees, can be a major red flag about the franchisor's practices and the health of the system.

Potential Mitigations

• Your attorney should always carefully review Item 3 for any disclosed litigation and assess its potential impact on the franchise system.
• A business advisor can help you understand whether the amount and type of litigation is normal for a system of its size and age.
• Contacting franchisees involved in past or pending litigation, if possible, can provide crucial insights.