Explanation

This specific risk was not identified in the FDD Package. Item 20 data shows the franchise system is new, with franchisees only beginning operations in 2024, so there is no history of turnover yet. High franchisee turnover in an established system can be a major warning sign of underlying problems, such as lack of profitability or poor franchisor support.

Potential Mitigations

• A business advisor can help you evaluate the business model's long-term viability, which may influence future turnover rates.
• It is advisable to contact the initial franchisees listed in Exhibit F to gauge their early satisfaction and future intentions.
• Your attorney can help you understand your rights and obligations regarding contract renewal and transfer, which are factors in turnover.

Explanation

This risk was not identified in the FDD package. The growth detailed in Item 20, from zero to three franchised outlets with three more projected, appears controlled for a new system. Unchecked rapid growth can strain a franchisor's ability to provide adequate support, but that does not appear to be the case here.

Potential Mitigations

• Engaging a business advisor to discuss the franchisor's plans for scaling its support infrastructure as the system grows is a prudent step.
• Speaking with the first few franchisees listed in Exhibit F can provide insight into the current quality of support.
• Your accountant can review the franchisor's financial capacity in Item 21 to support future growth.

Explanation

This risk was not identified. The concept, "fish and chips," is a traditional and enduring food item, not a short-term trend. While the food truck model is modern, it has become an established segment of the foodservice industry. The business does not appear to be based on a fad with limited long-term viability.

Potential Mitigations

• It is still valuable to have a business advisor help you research the long-term outlook for the food truck industry in your specific market.
• You should assess local consumer demand and competition for this type of quick-service food offering.
• Your accountant can help you model the financial sustainability of the business, considering potential shifts in consumer tastes.

Explanation

This risk does not appear to be present. Item 2 indicates that the key management personnel have several years of direct, hands-on experience operating the "On the Hook Fish and Chips" business through affiliate companies. This relevant industry and brand-specific experience is a positive factor, even though the franchising entity itself is new.

Potential Mitigations

• When interviewing current franchisees, it is wise to ask about their direct experiences with the management team's support and guidance.
• A business advisor can help you assess whether the management team's operational experience translates effectively to franchise system support.
• During your own interactions, you should evaluate the professionalism and knowledge of the management team.

Explanation

This risk was not identified in the FDD Package. Item 1 describes the parent company as Ocean 5 Enterprises, LLC, and Item 2 details a management team that appears to be comprised of founders and long-term employees. There is no indication of ownership by a private equity firm, which can sometimes introduce risks related to short-term profit motives.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor and its parent company through public records.
• It is beneficial to ask the franchisor about their long-term vision for the company to gauge their commitment to brand health.
• A business advisor can help you understand the potential implications of any future sale of the franchise system.

Explanation

This risk is not present, as Item 1 of the FDD explicitly states that the franchisor has no legal predecessor. The franchise system is being launched by a new entity, although it is affiliated with companies that have been operating the business concept for several years. There is no disclosed history of issues from a prior franchising entity.

Potential Mitigations

• A business advisor should still help you investigate the operational history and reputation of the affiliate companies that have been running the business.
• Your attorney can confirm the corporate history and verify the "no predecessor" statement.
• Speaking with long-term employees or managers of the affiliate operations could provide valuable historical context.

Explanation

This risk was not identified in the FDD package. Item 3 states that there is no litigation that requires disclosure. The absence of a history of lawsuits, particularly those involving claims of fraud or breach of contract from other franchisees, is a positive indicator, though not a guarantee of future performance or conduct.

Potential Mitigations

• Your attorney can conduct a public records search to independently verify the absence of significant litigation against the franchisor or its affiliates.
• Asking current franchisees about any disputes, even those not rising to the level of litigation, can provide valuable insight.
• Understanding the dispute resolution process outlined in the Franchise Agreement with your attorney is important for any future disagreements.