Explanation

This specific risk was not identified in the FDD package. Item 20 data does not show a high rate of franchisee terminations, non-renewals, or other cessations. However, the franchise system is very new, with only two franchised outlets at the end of 2023, so this data has limited predictive value. High turnover is generally a major red flag indicating potential systemic problems.

Potential Mitigations

• Your business advisor can help you analyze turnover data trends as the system matures by reviewing future FDDs.
• Contacting franchisees listed in Item 20, as your attorney might suggest, is a critical step to understand their satisfaction and the system's health.
• An accountant can help calculate the true turnover rate by combining terminations, non-renewals, and other cessations.

Explanation

This specific risk was not identified in the FDD package. The system is new and small, showing minimal growth of one new franchised unit in 2023. Rapid growth can become a risk if a franchisor's support infrastructure cannot keep pace with new unit openings, potentially leading to inadequate training, site selection assistance, and ongoing operational support for all franchisees.

Potential Mitigations

• A business advisor can help you monitor the system's growth rate against the franchisor's expansion of its support staff and resources.
• Asking existing franchisees about the quality and timeliness of support is a prudent step your attorney might recommend.
• It is wise to have an accountant review the franchisor's financial statements in future FDDs to see if capital is being reinvested into support.

Explanation

This risk was not identified in the FDD package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. This type of ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system, potentially affecting franchisee support and costs.

Potential Mitigations

• It is a good practice to ask your attorney to verify the ownership structure of the franchisor entity.
• Should ownership change in the future, a business advisor can help research the track record of the new owners, particularly if it is a private equity firm.
• Regular communication with other franchisees can provide early warnings about shifts in company philosophy under new ownership.

Explanation

This risk was not identified in the FDD package. Item 1 discloses an affiliate, 5 Boroughs USA, Inc., that owns the trademarks, but does not indicate the franchisor itself has a parent company. Failure to disclose a parent company or its financials, when required, can obscure a complete picture of the franchise system's financial backing and stability.

Potential Mitigations

• Your attorney can help you confirm the corporate structure and identify any controlling entities.
• If a parent entity were involved, your accountant would advise on the importance of reviewing its financial statements for a complete risk assessment.
• Understanding the relationship between all affiliated companies mentioned in Item 1 is a key due diligence step to perform with your advisors.

Explanation

This risk was not identified in the FDD package. Item 1 states that Poke Bowl United has no predecessors. When a franchisor has predecessors, it is important to review their history for any inherited issues, such as litigation or high franchisee turnover, which could impact the current system.

Potential Mitigations

• Your attorney can help verify the franchisor's statements regarding its history and lack of predecessors.
• A business advisor can assist in researching the history of the brand itself, even if the franchising entity is new.
• Speaking with long-term employees or affiliates, if possible, can sometimes reveal historical context about the business.

Explanation

This risk was not identified in the FDD package. Item 3 discloses no material litigation involving the franchisor, its predecessors, or its management. A pattern of litigation, particularly claims of fraud or breach of contract brought by franchisees, is a significant red flag that can indicate systemic problems within a franchise.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent search for any litigation not required to be disclosed in the FDD.
• Discussing any legal disputes you are aware of with current and former franchisees can provide valuable context.
• A business advisor can help you assess the nature of any litigation discovered to understand its potential impact on the system.