Explanation

This risk was not identified in the FDD Package. The franchised business is for a fast-casual barbeque restaurant, a well-established segment of the restaurant industry, not a concept based on a short-term trend. However, any business can be affected by changing consumer tastes, so long-term market relevance should always be a consideration.

Potential Mitigations

• A business advisor can help you assess the long-term market demand for the specific style of barbeque and service model in your local area.
• Review the franchisor's plans for menu innovation and brand development with your business advisor to gauge their strategy for staying current.
• Your accountant can help you model different scenarios, including shifts in consumer spending, to stress-test your business plan.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the key executives have been involved with the Mighty Quinn's brand since 2012 and the franchising entity since 2018. This demonstrates significant experience in both the specific industry and with the brand itself. In any franchise, it is still important to assess how management's experience translates into effective franchisee support.

Potential Mitigations

• Engage with a business advisor to evaluate if the management team's disclosed experience aligns with the support needs of a modern franchise system.
• When speaking with current franchisees, ask specifically about their interactions with and the effectiveness of the leadership team.
• Consulting with your attorney can help clarify the contractual obligations for support outlined in the franchise agreement.

Explanation

This risk was not identified in the FDD Package. Item 1 identifies the parent company as Mighty Quinn's Holdings, LLC, but there is no information suggesting it is a private equity firm. The risk with private equity ownership is often a focus on short-term returns over the long-term health of franchisees. While not present here, any corporate owner's priorities can affect the system.

Potential Mitigations

• A discussion with your attorney can help you understand the franchisor's right to sell or assign the franchise system to any other entity, including a PE firm, in the future.
• Your business advisor can help you research the ownership structure and reputation of any franchisor you consider.
• Asking current franchisees about their perception of the franchisor's long-term commitment to the brand is a useful due diligence step.

Explanation

This risk was not identified in the FDD Package. Item 1 properly discloses the existence of a parent company. However, it's important to understand the financial relationship between a franchisor and its parent, as weakness in a parent company that supports the franchisor could pose a risk. In this case, the franchisor's heavy financial reliance on its affiliates is a related risk captured elsewhere.

Potential Mitigations

• Your accountant should analyze any disclosed affiliate or parent company transactions to assess the franchisor's financial independence.
• It is wise to have your attorney review any guarantees offered by a parent company, as they can be a source of strength or may contain loopholes.
• Asking the franchisor about the nature and stability of its relationship with its parent company can provide valuable context.

Explanation

This risk was not identified in the FDD Package. Item 1 of the FDD clearly states that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the major portion of its assets, and a negative history with a predecessor, such as litigation or bankruptcy, could be a red flag for the health of the system being acquired.

Potential Mitigations

• A franchise attorney can confirm that the FDD's statements about predecessors are clear and unambiguous.
• For any franchise investment, it's useful to have a business advisor help you research the full history of the brand, even if no formal predecessors are listed.
• Interviewing the longest-tenured franchisees can often reveal important historical information about the system's origins and evolution.

Explanation

This risk was not identified in the FDD Package. Item 3 states that there is no litigation that requires disclosure. A pattern of litigation, especially claims of fraud or breach of contract brought by franchisees, can be a major warning sign about a franchise system's practices and health. The absence of such disclosures here is a positive indicator.

Potential Mitigations

• Your attorney can help you perform an independent search for litigation involving the franchisor or its principals that may not have met the threshold for FDD disclosure.
• During discussions with former franchisees, it is prudent to inquire about any legal disputes they may have had with the franchisor.
• A business advisor can help you assess the overall health of franchisee relations within the system.