Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees. If a franchisor expands too quickly, new franchisees may find that the promised support infrastructure has not kept pace with the number of new units being opened, potentially harming their business.

Potential Mitigations

• Analyzing the franchisee growth data in Item 20 with a business advisor can help determine if the system is expanding at a sustainable rate.
• Inquiring with both new and established franchisees about the quality and timeliness of franchisor support is a valuable step.
• An accountant's review of the franchisor's financial statements can help assess if they have the capital to support continued growth.

Explanation

This specific risk was not identified. The franchisor, eMax's, was formed in 2000 and has been offering franchises since 2002. However, investing in any franchise system involves risks related to the business model's long-term viability and the management team's ability to execute. A new system might lack proven operational procedures, brand recognition, or adequate support infrastructure, increasing the potential for challenges.

Potential Mitigations

• A business advisor can help you conduct thorough due diligence on the brand's history and the management team's experience.
• Speaking with the earliest franchisees in the system can provide valuable insight into its evolution and the franchisor's learning curve.
• Your accountant should carefully review the franchisor's financial history to assess its stability and track record over time.

Explanation

This risk was not identified in the FDD package. The core concept, Filipino-style cuisine, has a long-established market. However, a prospective franchisee should still consider if a specific restaurant concept is a sustainable business or tied to a fleeting trend. A fad business can face a sharp decline in customer interest, jeopardizing the long-term viability of your investment even if you are contractually obligated for many years.

Potential Mitigations

• Engaging a business advisor to research the long-term market demand for the specific cuisine and restaurant style in your target area is recommended.
• It is prudent to evaluate the franchisor's plans for menu innovation, marketing, and brand adaptation to stay relevant over time.
• A discussion with your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key management personnel have extensive experience, with most having been with the company since its inception in 2000. In general, inexperienced management can pose a significant risk, as they may lack the expertise to provide effective support, manage system growth, or navigate industry challenges, potentially harming franchisee success.

Potential Mitigations

• A thorough review of the management team's biographies in Item 2 with a business advisor is a good practice.
• Discussing the quality of management's support and strategic direction with current franchisees provides valuable real-world insight.
• Your attorney can help you verify the professional histories of key executives if any concerns arise.

Explanation

This risk was not identified in the FDD. The franchisor is not directly owned by a private equity firm, though it is part of a larger corporate structure. When a PE firm owns a franchisor, there's a risk of decisions prioritizing short-term investor returns over the long-term health of franchisees. This can manifest as reduced support, increased fees, or a quick sale of the system.

Potential Mitigations

• Researching the ownership structure in Item 1 with your attorney is a key step in due diligence.
• If private equity is involved, working with a business advisor to research the firm's history with other franchise brands is crucial.
• It is important to understand how a potential sale of the franchise system could impact your rights by reviewing transfer clauses with your attorney.

Explanation

This risk was not identified. The FDD discloses that eMax's is a wholly-owned subsidiary of M Food Concepts, Inc., which is a subsidiary of Max's Group, Inc. (MGI), a publicly traded company in the Philippines. The franchisor's financials are provided, but not those of the ultimate parent. The lack of parent company financials can sometimes obscure the true financial health and backing of the overall enterprise, which is a risk to consider.

Potential Mitigations

• Your accountant should review the provided financials and any parent guarantees to assess the franchisor's standalone stability.
• It is wise to consult your attorney regarding the legal relationship between the franchisor and its parent to understand where obligations lie.
• A business advisor can help research the public filings of the ultimate parent company for a more complete picture of the enterprise.

Explanation

This risk is not present in the FDD. The document clearly discloses the franchise's history, including a corporate restructuring in 2016 and the merger of a predecessor entity. In general, if a franchisor fails to properly disclose its predecessor history, a franchisee may not have a complete picture of the system's past performance, including historical litigation, bankruptcies, or franchisee turnover, which could conceal inherited risks.

Potential Mitigations

• Your attorney should carefully review the predecessor information in Items 1, 3, and 4 of any FDD.
• Engaging a business advisor to research the history of the brand, especially if it was acquired from another company, is a valuable step.
• It is prudent to ask long-term franchisees about their experiences under any previous ownership.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. A pattern of franchisee-initiated lawsuits alleging fraud or misrepresentation, or a high volume of franchisor-initiated lawsuits against franchisees, can be a significant red flag. It may indicate systemic problems, an overly aggressive franchisor, or a dissatisfied franchisee network.

Potential Mitigations

• A careful review of Item 3 with your attorney is a critical part of due diligence.
• Your attorney can conduct independent searches for litigation involving the franchisor that may not have met the criteria for disclosure.
• Speaking with current and former franchisees can provide context on the nature of the relationship with the franchisor.