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How much does Phở Hòa cost?
Initial Investment Range
$391,100 to $759,180
Franchise Fee
$43,820 to $51,320
Phở Hòa® restaurants offer sit-down table-service casual dining featuring authentic Vietnamese noodle soups and plate dishes made from proprietary recipes with fresh ingredients designed to appeal to health-conscious customers.
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Phở Hòa April 1, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 19, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The franchisor’s 2024 audited financial statements show a net loss of over $11,000, a decline from a net income of over $27,000 in 2023. While stockholder equity is positive, it is decreasing. The franchisor also pays significant licensing and management fees to its parent company, Aureflam Corporation, whose financials are not provided. These factors could indicate financial weakness, potentially impacting the franchisor’s ability to support you.
Potential Mitigations
- A franchise accountant should perform a detailed analysis of the financial statements, including the significant cash flows to the parent company.
- Discuss the franchisor's financial health and its ability to provide support with your business advisor, noting the recent operating loss.
- It would be prudent to ask your attorney if a parent company guarantee of the franchisor's obligations is possible.
High Franchisee Turnover
High Risk
Explanation
The franchise system is shrinking and shows a high rate of turnover. In 2024, the system started with 17 franchised units, but saw four exits (one termination, one reacquisition, two ceased operations) and only one new opening. This represents a net loss of three units, or a 23.5% churn rate of the starting base. This trend may suggest significant challenges within the system regarding franchisee profitability, satisfaction, or support.
Potential Mitigations
- Your attorney can help you formulate questions to ask current and former franchisees about their experiences and reasons for leaving the system.
- A thorough discussion with your business advisor is necessary to evaluate the potential systemic issues that such high turnover might indicate.
- Engage your accountant to analyze the financial implications and risks associated with joining a contracting franchise system.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD Package. The system is not growing rapidly; in fact, Item 20 data shows the system has been contracting over the last three years. A rapidly growing system can sometimes strain a franchisor's ability to provide adequate support to all its franchisees.
Potential Mitigations
- Your business advisor can help evaluate whether the system's current size and trajectory align with your investment goals.
- When reviewing any franchise, it's wise to have an accountant assess if the franchisor's financials support its current or projected growth.
- Consulting with your attorney about the franchisor's contractual support obligations is a key step in due diligence.
New/Unproven Franchise System
Low Risk
Explanation
This risk was not identified in the FDD Package. South Bay Soup Corporation (SBSC) was formed in 2005, and its management has extensive experience with the brand. An unproven system can present higher risks, as its business model, brand recognition, and support infrastructure may not be fully developed or validated in the marketplace.
Potential Mitigations
- Engaging a business advisor to research the history and track record of any franchise system you consider is a valuable step.
- An accountant should always review the franchisor's financial statements to assess its stability and resources.
- Speaking with an attorney helps to understand the legal framework and protections within the franchise agreement.
Possible Fad Business
Low Risk
Explanation
This risk was not identified in the FDD Package. The business, which focuses on Vietnamese noodle soups and dishes, is part of a well-established restaurant market segment and is not based on a recent or fleeting trend. Fad businesses carry a higher risk of declining consumer interest, which could jeopardize your long-term investment.
Potential Mitigations
- A business advisor can help you conduct market research to assess the long-term consumer demand for any franchise concept.
- Reviewing the franchisor's plans for product innovation and adaptation with a financial advisor can provide insight into its longevity.
- It is important to have an attorney review the franchise agreement term to ensure it aligns with a realistic return on investment.
Inexperienced Management
Low Risk
Explanation
This risk was not identified in the FDD Package. The key executives listed in Item 2 have been with South Bay Soup Corporation (SBSC) or its parent company for many years, indicating significant experience with the brand and the franchising model. Inexperienced management can be a risk factor if the leadership lacks the necessary skills to manage a franchise system effectively.
Potential Mitigations
- A business advisor can help you research the background and track record of any franchisor's management team.
- Speaking with current franchisees can provide valuable insight into the quality and effectiveness of the leadership.
- An attorney should review the franchisor's contractual obligations to provide support, regardless of management's experience.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD Package. Item 1 indicates the franchisor, South Bay Soup Corporation (SBSC), is a subsidiary of Aureflam Corporation, not a private equity firm. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially affecting franchisee support and costs.
Potential Mitigations
- Your attorney can help you investigate the ownership structure of any franchisor to understand who controls the company.
- It is wise to have a business advisor research the track record of any parent company, particularly its history with other franchise brands.
- An accountant can analyze how the ownership structure might impact the franchisor's financial decisions and stability.
Non-Disclosure of Parent Company
Medium Risk
Explanation
The franchisor, South Bay Soup Corporation (SBSC), is a wholly owned subsidiary of Aureflam Corporation. The franchisor pays significant fees to its parent and has a large payable to them. While the franchisor provides its own audited financials, the financials of the parent company are not included. This creates a risk, as the financial health of the parent could impact the franchisor's stability, and that health is not disclosed.
Potential Mitigations
- Your accountant should carefully review the related-party transactions detailed in the notes to the financial statements.
- A discussion with your attorney is recommended to understand the implications of the parent company not providing a financial guarantee.
- You might ask the franchisor, through your legal counsel, if they would be willing to provide the parent company's financials for review.
Predecessor History Issues
Medium Risk
Explanation
The FDD discloses a complex history involving the franchisor’s Operating Affiliate, Aureflam, and a separate, unaffiliated entity named Pho Hoa Vietnamese Restaurant Corp. This latter entity, under a 2002 agreement, may still operate restaurants with a similar name that are not part of your franchise system. Item 13 also notes a potential unauthorized trademark use by a former location of this other entity, which could create brand confusion.
Potential Mitigations
- A thorough review of the franchisor's history in Item 1 with your attorney is crucial to understand these relationships.
- Engaging a business advisor to assess the potential for brand confusion in your target market could be beneficial.
- You should discuss the trademark status and any ongoing disputes with the franchisor for clarity on brand protection efforts.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or breach of contract, can be a significant red flag about the health and integrity of a franchise system.
Potential Mitigations
- It is always prudent to have an attorney review the litigation disclosures in any FDD.
- A business advisor can help you conduct independent online searches for news articles or other public information about any franchisor.
- Speaking with current and former franchisees can often reveal disputes that may not have risen to the level of disclosed litigation.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems