Explanation

This risk was not identified in the FDD package. Rapid system growth can sometimes strain a franchisor's ability to provide adequate support to all franchisees. If a system expands too quickly, new franchisee training, site selection assistance, and ongoing operational support may suffer, potentially impacting the performance of individual units.

Potential Mitigations

• A business advisor can help you analyze the franchisor's growth rate in Item 20 in relation to its support staff and financial resources.
• In any franchise, it is wise to ask existing franchisees about the quality and timeliness of the support they receive from the franchisor.
• Your attorney should review the franchisor's support obligations outlined in Item 11 to ensure they are specific and sufficient.

Explanation

This risk was not identified, as Noble Roman's was founded in 1972 and has extensive history. For new franchise systems, there is an increased risk due to unproven business models, a lack of brand recognition, and potentially underdeveloped support structures. The success of early company-owned units does not always translate to franchisee success.

Potential Mitigations

• When considering a new system, your business advisor should help you conduct deep due diligence on the founders' industry and franchising experience.
• An accountant can help assess if a new franchisor is adequately capitalized to support its initial growth phase.
• Your attorney may be able to negotiate more favorable terms to compensate for the higher risk of joining an unproven system.

Explanation

This risk was not identified in the FDD package, as pizza is a well-established industry. Investing in a business tied to a current trend or fad carries the risk that consumer interest may decline, potentially harming long-term viability. Even if the fad ends, your contractual obligations to the franchisor typically continue.

Potential Mitigations

• A business advisor can help you conduct market research to assess the long-term sustainability of consumer demand for a product or service.
• When evaluating a trendy concept, ask the franchisor about their plans for innovation and adaptation to stay relevant.
• Your financial advisor can help you analyze the business's resilience to shifts in consumer preferences and economic downturns.

Explanation

This risk was not identified in the FDD package, as the management team disclosed in Item 2 has decades of experience with the company. Franchisors with inexperienced management may lack the proven systems or infrastructure to provide adequate franchisee support. This can lead to operational challenges, poor strategic decisions, and insufficient assistance despite the fees you pay.

Potential Mitigations

• A business advisor can help you vet the background of any franchisor's management team for relevant industry and franchising experience.
• It is always prudent to speak with existing franchisees about the quality of support and the competence of the management team.
• Your attorney can help you understand the support obligations the franchisor commits to in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. When a franchisor is owned by a private equity firm, there may be a focus on short-term investor returns over the long-term health of the system. This can sometimes lead to increased fees, cuts in franchisee support, or pressure to use affiliated vendors to maximize profits before the firm exits its investment.

Potential Mitigations

• Your business advisor can help you research a private equity firm's track record with other franchise brands it has owned.
• Speaking with franchisees who have been in the system before and after a private equity acquisition can provide valuable insight.
• Your attorney should review the assignment clauses in the Franchise Agreement to understand what happens if the system is sold.

Explanation

This risk was not identified, as Item 1 clearly states the company does not have a parent. In some cases, a franchisor may be a subsidiary of a larger parent company. If the parent's financial statements are not provided when required, it can obscure the true financial backing and stability of the franchise system you are investing in.

Potential Mitigations

• Your attorney should verify the franchisor's corporate structure and determine if any parent company guarantees are in place.
• If a parent company exists and guarantees obligations, an accountant should review its financial statements for a complete risk assessment.
• It is important to understand the full corporate structure to know where ultimate control and financial responsibility lie; a business advisor can help.

Explanation

This risk was not identified, as no predecessors are disclosed in Item 1. Some franchisors acquire their business from a predecessor entity. If this history is not fully disclosed, you may be unaware of past issues like litigation, bankruptcy, or high franchisee turnover that could be inherited by the current franchisor and affect the system's stability.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and their history.
• If a predecessor is mentioned, a business advisor can help you conduct independent research on its historical performance and reputation.
• Speaking with long-term franchisees who operated under a predecessor can provide critical insights into the system's evolution and any lingering issues.

Explanation

This risk was not identified, as Item 3 discloses no litigation. A pattern of lawsuits filed by franchisees against a franchisor alleging fraud or misrepresentation can be a major red flag. Similarly, an unusually high number of lawsuits filed by the franchisor against its franchisees can indicate a punitive or overly aggressive culture, which may present a risk to your business relationship.

Potential Mitigations

• Your attorney should always carefully review the details of any litigation disclosed in Item 3.
• Even with no disclosed litigation, speaking with former franchisees may reveal past disputes that were settled before a lawsuit was filed.
• A business advisor can help you research online forums and news articles for any informal complaints or reports of disputes.