Explanation

This risk was not identified. The audited financial statements in Exhibit B show Monkburger Franchise Group LLC (Monkburger) is profitable, with positive net income and member's equity for the 2022 and 2023 fiscal years. The balance sheet appears healthy and there is no 'going concern' note from the auditor. This financial stability is important as it suggests the franchisor has the resources to support its franchisees and grow the brand.

Potential Mitigations

• Engaging an accountant to perform an in-depth review of the franchisor's financial statements, including footnotes and historical trends, is a crucial step.
• Your business advisor should help you assess whether the franchisor's financial health is dependent on new franchise sales versus ongoing royalties.
• A thorough discussion with your attorney regarding any financial performance guarantees or bonds the franchisor may have posted is advisable.

Explanation

This risk was not identified in the FDD package. Item 20 data shows the system has a small number of units and is not currently undergoing a phase of rapid expansion. This can be positive, as it suggests the franchisor's support infrastructure is not likely to be overstretched. However, it also points to slow growth, which presents its own set of risks regarding brand recognition and development.

Potential Mitigations

• A business advisor can help you evaluate the pros and cons of joining a slow-growing system versus a rapidly expanding one.
• Discuss with your attorney whether the franchise agreement contains any development guarantees or expansion plans for your region.
• In conversations with existing franchisees, it would be wise to ask about their perception of the franchisor's growth strategy and support capabilities.

Explanation

This risk was not found. Monkburger operates in the classic bar and grill segment, a well-established and durable part of the restaurant industry. The concept, focusing on hamburgers, sandwiches, and a sports-themed atmosphere, does not appear to be based on a short-term fad. This suggests a lower risk of the business model becoming obsolete due to shifting consumer trends.

Potential Mitigations

• A business advisor can help you research the long-term health and competitive landscape of the sports bar and grill market in your specific area.
• When developing a business plan with your accountant, consider the concept's resilience to local economic shifts and competition.
• Reviewing the franchisor's plans for menu development and concept evolution with your attorney can provide insight into its long-term strategy.

Explanation

This risk was not identified. FDD Item 2 indicates that the key executives of Monkburger have extensive and long-term experience, with some involved since 1982 in operating the underlying restaurant concept and since 2013 with the franchise company itself. This depth of experience in both the specific business and in franchising is a positive factor, suggesting a stable and knowledgeable leadership team.

Potential Mitigations

• A business advisor can help you verify the backgrounds and reputations of the key management personnel listed in Item 2.
• In discussions with current franchisees, it's beneficial to ask about their direct experiences with the management team's accessibility and support.
• Your attorney can research whether any of the key executives have been involved in other, less successful franchise systems.

Explanation

This risk does not appear to be present. The FDD, particularly in Items 1 and 2, indicates that Monkburger is privately owned by its key operators and founders. There is no disclosure of ownership by a private equity firm. This typically suggests that management's focus is more likely aligned with the long-term health of the brand rather than short-term investor returns.

Potential Mitigations

• To confirm ownership structure, your attorney can perform a corporate records search on the franchisor entity.
• Engaging a business advisor to research the history of the company and its owners can provide additional peace of mind.
• Asking the franchisor directly about any plans for future sale of the company is a worthwhile question during due diligence.

Explanation

This risk was not identified. FDD Item 1 clearly states that Monkburger has no parent company. The franchisor entity appears to be a standalone company, and there is no indication that its financial stability is dependent on an undisclosed parent. The provided financial statements in Exhibit B are for the franchisor entity itself, providing direct transparency into its financial health.

Potential Mitigations

• Your accountant should confirm that the financial statements provided are for the actual franchising entity, Monkburger Franchise Group LLC.
• A consultation with your attorney can verify the corporate structure and ensure there are no other affiliated entities that could impact your franchise.
• It is prudent to ask your business advisor to assess whether the franchisor's capitalization is sufficient for it to operate independently.

Explanation

This risk was not identified in the FDD. Item 1 states that Monkburger has no predecessors. The document openly discloses the history of certain restaurant locations being previously owned by affiliates of the franchisor's owners before being converted to franchises. This transparency about the system's lineage is a positive sign and means you are not lacking historical context about the brand's origins.

Potential Mitigations

• Your attorney can help you understand the relationship between the franchisor and any affiliated entities mentioned in Item 1.
• It is beneficial to ask early franchisees about the transition from affiliate-owned to franchised operations.
• A business advisor can help you assess if the operational history of the affiliate-owned stores is relevant to your potential franchise.

Explanation

This risk does not appear to be present. FDD Item 3, which requires the disclosure of material litigation, states that there is no litigation that needs to be disclosed. The absence of a pattern of lawsuits, especially those initiated by franchisees alleging fraud or breach of contract, is a positive indicator of the health of the franchisor-franchisee relationship within the system.

Potential Mitigations

• While the FDD discloses no litigation, an independent public records search by your attorney for lawsuits involving the franchisor or its principals is a prudent step.
• Asking current and former franchisees about any past disputes, even those not rising to the level of litigation, can provide valuable insight.
• Your accountant should review the financial statements for any notes related to litigation reserves or contingent liabilities.