Explanation

This risk was not identified in the FDD package. Rapid system growth can be a concern if a franchisor's support infrastructure, such as training and field support staff, cannot keep pace with the number of new units opening. This can lead to diluted support quality and operational challenges for all franchisees. The financials in Item 21 show the franchisor is part of a very large, established system, suggesting resources are available.

Potential Mitigations

• Your business advisor can help you assess if the franchisor's growth plans seem manageable relative to their stated support resources.
• Asking existing franchisees about the current quality and responsiveness of franchisor support is a valuable step.
• An accountant should review the franchisor's investment in support infrastructure as reflected in their financial statements.

Explanation

This risk was not identified in the FDD package. Kahala Franchising, L.L.C. (Kahala LLC) and its parent company, MTY Food Group, Inc., are large, established entities with extensive experience in franchising and have operated for many years. An unproven system would pose risks such as an undeveloped brand, untested operational procedures, and inexperienced management, which do not appear to be the primary risks here.

Potential Mitigations

• In any franchise opportunity, it is important to have your attorney investigate the franchisor's history and the track record of its management team.
• A business advisor can help you evaluate the maturity and stability of the brand and its operating systems.
• Contacting the longest-operating franchisees can provide insight into the system's evolution and long-term viability.

Explanation

This risk was not identified in the FDD package. The smoothie and juice bar industry is well-established and has demonstrated consumer demand over many years. A fad business, based on a fleeting trend, would present a high risk of failure once consumer interest wanes, potentially leaving you with a worthless business and ongoing liabilities long after the trend has passed.

Potential Mitigations

• With any franchise, a business advisor can help you conduct independent market research to assess long-term consumer demand for the products or services.
• It is prudent to evaluate a brand's strategy for innovation and adaptation to stay relevant in a changing market.
• Your financial advisor can help model the business's potential resilience to economic shifts and downturns.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the executive team of Kahala LLC and its parent companies have extensive and long-term experience in the food service and franchising industries. Inexperienced management can be a significant risk, as it may lead to poor strategic decisions, inadequate franchisee support, and a higher potential for system-wide problems.

Potential Mitigations

• You should always have your business advisor help you vet the backgrounds and specific experience of the key executives listed in Item 2.
• Inquiring with existing franchisees about their perception of the management team's competence and support is a valuable due diligence step.
• Your attorney can help you understand the roles and responsibilities of the management team as outlined in the disclosure document.

Explanation

This risk was not identified in the FDD package. The FDD clearly discloses the parent company, MTY Franchising USA, Inc., and provides its audited financial statements in Item 21 and a Performance Guaranty in Exhibit W. When a parent company is not disclosed or its financials are omitted when required, it can hide financial instability or a lack of real support for the franchisor entity.

Potential Mitigations

• Your attorney should always verify that the FDD properly discloses all parent companies and guarantors.
• It is important for your accountant to review the financial statements of any parent entity that guarantees the franchisor's performance.
• Understanding the specific terms and legal strength of any performance guarantee with your lawyer is a key step.

Explanation

This risk was not identified in the FDD package. The document provides extensive history on predecessors for the Planet Smoothie brand and its affiliates, including details on litigation and administrative actions. A failure to disclose such history could obscure a pattern of problems, such as high franchisee failure rates or legal disputes under previous ownership, which would be a significant red flag for a prospective franchisee.

Potential Mitigations

• A thorough review of all predecessor information in Items 1, 3, and 4 with your franchise attorney is a critical due diligence step.
• Your business advisor can assist you in researching the public track record of any predecessor entities.
• Asking long-term franchisees about their experiences under previous ownership can provide valuable context.