Explanation

This risk was not identified. The franchise system has not experienced rapid growth in recent years; in fact, the total number of outlets has been relatively stagnant or has slightly decreased, according to Item 20 data. Rapid growth can strain a franchisor's ability to provide support, so its absence here is noteworthy. However, slow growth can also indicate other system challenges.

Potential Mitigations

• Discuss the system's growth strategy and historical performance with the franchisor to understand their future plans.
• An accountant can help analyze the franchisor's financial statements to assess if they are positioned for healthy future growth.
• Engage a business advisor to evaluate whether the brand's market position is stable, growing, or declining.

Explanation

This risk was not identified in the FDD package. The business model, focused on hamburgers and craft beer, is part of a well-established segment of the restaurant industry and does not appear to be based on a short-term trend or fad. A sustainable concept is important for long-term viability, as your obligations under the franchise agreement will continue even if consumer interest in a fad product wanes.

Potential Mitigations

• Assess the long-term market demand for the product or service with your business advisor.
• Evaluate the franchisor's plans for innovation and adaptation with your marketing advisor.
• Consider the business model's resilience to economic downturns with your financial advisor.

Explanation

While Item 2 lists management with prior industry experience, the system's problematic history of high franchisee turnover and financial weakness raises questions about management's effectiveness in supporting a successful franchise network. The disparity between stated experience and poor system results presents a risk that management may not be able to provide the guidance and support necessary for your success.

Potential Mitigations

• A business advisor can help you vet the management team's track record and its relevance to the system's current challenges.
• It is important to speak with current and former franchisees about their direct experiences with the management team's support.
• Ask the franchisor direct questions about how their experience will address the issues reflected in Items 20 and 21.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a limited liability company and does not appear to be owned or controlled by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of franchisees, so its absence is a potentially positive factor.

Potential Mitigations

• Your attorney should always confirm the ownership structure of the franchisor.
• If private equity ownership were a factor, a business advisor could help research the firm's track record with other franchise brands.
• In any ownership structure, an accountant's review of the financials helps determine if profits are being reinvested into the system.

Explanation

This risk was not identified. The FDD's Item 1 appears to appropriately disclose the franchisor's affiliate, Mr. Brews Taphouse Holdings, LLC, which owns the trademarks. The documents do not suggest the existence of an undisclosed parent company whose financial health might be critical to the system's stability. Proper disclosure is crucial for you to assess the complete financial picture of the entities supporting the franchise.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and identify any relevant parent companies or guarantors.
• An accountant should review the financial statements of any parent or guarantor entity if they are provided or required.
• Inquire with your business advisor about the role any parent company plays in the franchise system's operations and support.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. A history with predecessor companies can sometimes introduce risks related to inherited legal issues, franchisee dissatisfaction, or operational problems, so the absence of a predecessor history can provide a clearer view of the current franchisor's track record.

Potential Mitigations

• Your attorney should always confirm the predecessor disclosures in Item 1 of the FDD.
• A business advisor can help you research the franchisor's history, even in the absence of a formal predecessor.
• Speaking with long-term franchisees can provide insight into the system's historical performance.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation that requires disclosure. A clean litigation history is a positive sign, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or breach of contract, can be a major red flag about the franchisor's practices and system health. You should still weigh this against other risk factors like franchisee turnover.

Potential Mitigations

• Your attorney should review Item 3 carefully and can conduct independent searches for litigation not required to be disclosed.
• Always ask current and former franchisees about any legal disputes they are aware of, with guidance from your business advisor.
• An accountant can review the financial statements for any notes related to litigation contingencies.