Explanation

This risk was not identified in the FDD Package. Item 20 data does not show a pattern of high franchisee terminations, non-renewals, or other cessations. However, it is important to monitor system health, as high turnover can be a leading indicator of franchisee dissatisfaction, lack of profitability, or poor franchisor support. Since the system is very new, with only two operating franchisees, this data has limited historical value.

Potential Mitigations

• It is wise to ask the franchisor about their franchisee relations and support systems with the help of a business advisor.
• When speaking with franchisees listed in Item 20, a business advisor can help you inquire about their satisfaction and future intentions.
• Your attorney can explain how the Franchise Agreement handles store closures or transfers.

Explanation

The risk of a franchisor's support systems being strained by excessively rapid growth was not identified. The system is currently very small and growing slowly. Prospective franchisees should still consider how a franchisor's infrastructure for training, site selection, and ongoing support will scale if growth accelerates. A system that cannot support its franchisees can lead to operational issues and reduced profitability for everyone.

Potential Mitigations

• In discussions with the franchisor, it's beneficial to ask about their strategic plans for scaling support systems as the franchise network grows.
• A business advisor can help you assess whether the current support staff and resources are adequate for projected growth.
• Reviewing the franchisor's financial capacity to invest in support infrastructure with your accountant is a prudent step.

Explanation

This risk was not identified in the FDD Package. The franchisor’s management, as detailed in Item 2, appears to have some relevant experience in the restaurant industry. Assessing the depth and direct relevance of management's experience in both franchising and the specific business sector is crucial. Inexperienced leadership can lead to weak support systems, poor strategic decisions, and a higher risk of system-wide problems.

Potential Mitigations

• It is prudent to verify the management team's track record and past performance with a business advisor.
• Asking existing franchisees about their confidence in the management team's leadership and support is a valuable due diligence step.
• Your attorney can help you formulate specific questions for the franchisor about their management team's experience.

Explanation

This risk was not identified in the FDD Package. The FDD does not indicate that the franchisor is owned by a private equity firm. This type of ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system. This might manifest as cuts in franchisee support, increases in fees, or pressure to use affiliated vendors.

Potential Mitigations

• Verifying the franchisor's ownership structure and any recent changes with your attorney is a good practice.
• A business advisor can help you research the ownership's history and reputation within the franchise industry.
• Understanding how a change in ownership could affect your Franchise Agreement should be discussed with your attorney.

Explanation

This risk was not identified in the FDD Package. The FDD appears to properly disclose its corporate structure and does not mention a parent company. When a franchisor is a subsidiary, the parent's financial health can be critical, especially if the franchisor relies on it for financial support or as a key supplier. A lack of disclosure about a parent entity can obscure significant risks to the system's stability.

Potential Mitigations

• Your attorney can help you verify the franchisor's corporate structure through public records.
• If a parent company were involved, having an accountant review its financial statements would be crucial for a complete risk assessment.
• Clarifying any guarantees or support provided by a parent company is a key topic to discuss with your attorney.

Explanation

This risk was not identified in the FDD Package, as PBU LLC discloses it has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. When predecessors exist, it's important to review their history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems with the business system that may have been inherited by the current franchisor.

Potential Mitigations

• It is always a good practice for your attorney to confirm the business's history as disclosed in Item 1.
• If predecessors were involved, a business advisor could help you research their historical track record.
• Asking long-tenured franchisees about their experience under any previous ownership can provide valuable insights.

Explanation

This risk was not identified in the FDD Package. Item 3 states that there is no litigation that requires disclosure. A pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, or a high number of suits filed by the franchisor against franchisees, can be a major red flag. It may signal systemic problems, franchisee dissatisfaction, or an overly aggressive franchisor.

Potential Mitigations

• Your attorney can conduct independent searches for litigation beyond what is disclosed in Item 3.
• Asking current and former franchisees about their experiences with disputes within the system can be very insightful.
• Understanding the dispute resolution process outlined in the Franchise Agreement is a critical discussion to have with your attorney.