Explanation

Based on the data presented in Item 20, the franchise system shows very low turnover, with no terminations, non-renewals, or other cessations of business over the past three years. This is generally a positive indicator. However, the document also discloses that the franchisor may use confidentiality agreements that restrict former franchisees from speaking openly. This could limit your ability to gather a complete picture during your due diligence calls.

Potential Mitigations

• When speaking with former franchisees, it is important to be aware that some may be legally unable to discuss their full experience; your attorney can help frame your questions.
• You should make an effort to contact a wide and diverse group of the franchisees listed in Item 20 to gather a broad range of perspectives.
• A business advisor can help you analyze the provided Item 20 data in the context of the entire FDD package.

Explanation

This specific risk was not identified in the FDD Package. The system has shown steady and manageable growth over the last three years, which does not suggest that support resources are overstretched. In general, however, a franchisor expanding too quickly can struggle to provide adequate training, site selection help, and ongoing operational support to all of its new franchisees, potentially harming their chance of success.

Potential Mitigations

• A discussion with your business advisor can help you evaluate a franchisor's growth rate in relation to its support infrastructure.
• It is always wise to ask a broad range of existing franchisees about the quality and timeliness of the support they currently receive.
• An accountant should review the franchisor's financial statements to determine if they have the capital to sustain their growth.

Explanation

This risk was not identified in the FDD Package. Pickleman's Franchising, LLC (Pickleman's) began franchising in 2008 and had 32 total outlets at the end of 2024, indicating it is an established system. An unproven system presents a higher risk because its business model, brand recognition, and franchisee support structures have not yet withstood the test of time, potentially leading to a higher rate of failure.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your business advisor assess the franchisor's history and the maturity of its systems.
• You should always ask your attorney to review the management team's experience in both the specific industry and in franchising.
• Speaking with the earliest franchisees in a system can provide valuable insight into how the franchisor has evolved.

Explanation

This risk was not identified in the FDD Package. The business operates quick-service restaurants specializing in sandwiches, soups, and pizzas, which is a well-established and enduring segment of the restaurant industry, not a temporary trend. A fad-based business carries the risk that consumer interest will decline, potentially leaving you with a failing business while still being bound by your long-term franchise agreement.

Potential Mitigations

• Your business advisor can help you research long-term consumer demand for any product or service you are considering.
• Investigating a company's plans for future innovation and adaptation is a key part of due diligence.
• An accountant can help you model the financial resilience of a business concept across different economic conditions.

Explanation

This risk was not identified in the FDD Package. The management team described in Item 2 has extensive experience; the CEO has been with the company since its 2007 inception and the COO has over 30 years of experience in the food industry, including with other major franchise systems. Inexperienced leadership can be a major risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate franchisee support.

Potential Mitigations

• Thoroughly vetting the background of a franchisor's key executives should be a standard part of your due diligence process with a business advisor.
• It is wise to ask existing franchisees about their confidence in the current management team's leadership and strategic direction.
• Your attorney can help you understand the roles and responsibilities of the key personnel as described in the FDD.

Explanation

This risk was not identified in the FDD Package, as there is no indication of private equity ownership. Private equity ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system, potentially resulting in reduced franchisee support, increased fees, or a quick sale of the company that could change the nature of your franchise relationship.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchisor and the track record of any parent investment firm.
• If a franchisor is PE-owned, asking your attorney to review assignment clauses that govern the sale of the system is critical.
• Speaking with franchisees who have been through a PE acquisition can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. The franchisor properly discloses its parent and affiliate structure in Item 1. When a franchisor is a subsidiary of a parent company, it is important that the parent's financial standing is also clear, especially if the parent guarantees the franchisor's obligations. Failure to disclose a parent company or its financials when required can hide financial instability that could affect your investment.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 and ensure all required entities are disclosed.
• If a parent company guarantee is provided, an accountant must review the parent's financial statements to assess its ability to back the guarantee.
• Understanding the relationships between all affiliated companies is a crucial part of due diligence.

Explanation

This risk was not identified in the FDD Package as no predecessors are listed in Item 1. A predecessor is a company from which the franchisor acquired a major part of its assets. When a predecessor exists, it is important to understand its history, as this could reveal past problems with the franchise system, such as high failure rates or litigation, which could carry over to the new entity.

Potential Mitigations

• Your attorney should carefully review Item 1 for any mention of predecessors and their history.
• If a predecessor is listed, conducting independent research on that company's track record is a wise step for your business advisor.
• Asking long-term franchisees about their experience under any previous ownership provides important context.

Explanation

This risk was not identified in the FDD Package. Item 3 discloses no history of litigation. However, the notes to the financial statements disclose a new lawsuit was filed against the company in January 2025. While a single lawsuit does not constitute a pattern, it represents a new potential liability. A pattern of litigation, especially claims of fraud from other franchisees, is a major red flag about a franchisor's practices.

Potential Mitigations

• Your attorney should carefully review any disclosed litigation and can help you research the public court records for more details.
• It is important to ask the franchisor directly about any pending lawsuits and their potential impact on the company.
• A business advisor can help you assess whether disclosed legal disputes indicate isolated issues or systemic problems.