Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide adequate support. However, the Item 20 data for Mad for Chicken Franchise, Inc. (Mad for Chicken) shows the system is shrinking, not growing rapidly, with a net decrease in total outlets in the most recent year. Therefore, the risks associated with rapid expansion do not appear to be present.

Potential Mitigations

• While not currently a risk, it is wise to have your business advisor periodically assess the system's growth rate against the franchisor's support capabilities.
• Your accountant can review future financial statements to ensure the franchisor maintains adequate capital to support its franchisee network.
• Continuous communication with other franchisees can provide early warnings if support levels decline due to any future growth.

Explanation

This risk was not identified in the FDD package. A fad-based business carries the risk of declining consumer interest over time. Mad for Chicken operates in the Korean-style fried chicken segment of the fast-casual restaurant industry. While popular, this market segment has demonstrated sustained consumer demand and is part of a broader, established industry. The concept does not appear to be based on a short-lived trend, which mitigates this particular risk.

Potential Mitigations

• It's still valuable for your business advisor to research long-term consumer trends in the fast-casual and specific food-style market.
• Ongoing evaluation of the franchisor's commitment to menu innovation and brand development can help ensure long-term relevance.
• An accountant can help you model different scenarios for market demand to understand potential financial resilience.

Explanation

This risk was not identified in the FDD package. Franchisors owned by private equity firms can sometimes prioritize short-term investor returns over the long-term health of franchisees. Based on the information in Item 1, Mad for Chicken does not appear to be owned by a private equity firm. The principals listed have been involved since the company's inception.

Potential Mitigations

• Even without current private equity ownership, your attorney should review the assignment clauses in the Franchise Agreement to understand your rights if the system is sold in the future.
• A business advisor can help you monitor any changes in franchisor ownership throughout the term of your agreement.
• Building a strong relationship with other franchisees can provide a collective voice in case of a future sale to a new ownership group.

Explanation

This risk was not identified in the FDD package. A franchisor should disclose parent companies in Item 1, and the parent's financials may be required if it guarantees the franchisor's performance. In this case, Mad for Chicken states it has no parent company. The franchisor entity, Mad for Chicken Franchise, Inc., provides its own audited financial statements in Item 21, and its affiliates are disclosed. Therefore, the risk of non-disclosure of a parent entity is not present.

Potential Mitigations

• Your attorney can verify the corporate structure and confirm the absence of an undisclosed parent entity through public record searches.
• An accountant should review the financial statements of the named franchisor entity to assess its standalone viability.
• It is wise to understand the roles of the disclosed affiliates and their financial relationships with the franchisor.

Explanation

This risk was not identified in the FDD package. A franchisor must disclose its business predecessors, and a history of issues with them can be a red flag. In Item 1, Mad for Chicken states, "We have no parent or predecessor company." This straightforward disclosure means there is no predecessor history to analyze, and therefore, this specific risk is not applicable.

Potential Mitigations

• Your attorney can confirm the franchisor's statement by reviewing corporate formation documents and public records.
• A business advisor can help you focus due diligence on the franchisor's own limited operating history, as this becomes more critical in the absence of a predecessor.
• In discussions with early franchisees, you can inquire about the brand's origin to ensure no informal predecessor exists.

Explanation

This risk was not identified in the FDD package. A pattern of litigation, especially claims of fraud or misrepresentation brought by franchisees, is a major red flag. According to Item 3, "No litigation is required to be disclosed in this Item." This indicates an absence of the type of material or significant lawsuits that would trigger this risk, which is a positive factor for a prospective franchisee.

Potential Mitigations

• While none is disclosed, your attorney can perform independent searches for litigation against the franchisor or its principals as part of due diligence.
• Engaging in open discussions with current and former franchisees can help uncover any disputes that may not have risen to the level of disclosable litigation.
• Your business advisor can help you establish processes for conflict resolution to avoid future disputes.