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How much does Presotea cost?
Initial Investment Range
$193,300 to $237,800
Franchise Fee
$50,000 to $58,000
The franchise offered is a Master Franchise to franchise "made to order" fresh brewed tea shops called Presotea.
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Presotea February 7, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: August 22, 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, Presotea (USA) Co., Ltd. (Presotea USA), presents significant financial risk. The FDD explicitly warns that its financial condition “calls into question” its ability to provide support. Financials show a history of losses and a cumulative deficit. The Illinois Attorney General has imposed a financial assurance requirement (deferring your fee payments) due to this financial weakness, which confirms this is a critical issue. The franchisor’s ability to support you appears questionable.
Potential Mitigations
- A franchise accountant should conduct a detailed analysis of the audited financials in Exhibit A, including the large accumulated deficit and valuation allowance.
- Discuss the implications of the Illinois Attorney General's financial assurance requirement with your franchise attorney.
- It is vital to question the franchisor about its capitalization and its ability to fund its obligations without relying on new franchise sales; a business advisor can help frame these inquiries.
High Franchisee Turnover
High Risk
Explanation
The franchisee turnover data in Item 20 indicates significant instability. In 2024, the franchisor reacquired 8 of its 20 master franchisees, a 40% reacquisition rate in a single year. Additionally, 12 master franchises were transferred to new owners. This extremely high level of churn through both reacquisitions and transfers suggests there may be systemic problems, franchisee distress, or a lack of profitability within the master franchise network, representing a substantial risk to your investment.
Potential Mitigations
- Your attorney can help you formulate specific questions for the franchisor regarding the reasons behind the high number of reacquisitions and transfers.
- It is imperative to contact a significant number of the current and former master franchisees listed in Item 20 to understand their experiences.
- Your accountant should help you assess the financial implications of such high turnover on the overall health and support of the system.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD Package. Rapid system growth can strain a franchisor's ability to provide adequate support to all franchisees. A system expanding too quickly might outpace its resources for training, site selection, and ongoing assistance, potentially affecting the quality of support you receive.
Potential Mitigations
- During due diligence, it's wise to ask a business advisor to help evaluate a franchisor's growth plans against their support infrastructure.
- Speaking with franchisees who joined at different times can provide your attorney with insights into how support levels have changed over time.
- An accountant's review of the franchisor's financials can help determine if they are investing sufficiently in support staff and systems to manage growth.
New/Unproven Franchise System
High Risk
Explanation
The franchisor explicitly discloses a “Short Operating History” as a special risk. The US entity was formed in 2018 and began offering master franchises in 2019. This limited track record in the United States means the business model, support systems, and brand recognition are not as established as a more mature system. This newness, combined with the financial weakness and high turnover, elevates the overall risk of your investment.
Potential Mitigations
- Engage a business advisor to conduct deep due diligence on the management team's specific experience in both the US market and in supporting a master franchise structure.
- It is critical to speak with the earliest US master franchisees to learn about their experiences with the system's development and support.
- Your attorney may be able to negotiate more favorable terms or protections to help offset the higher risks associated with a newer system.
Possible Fad Business
Medium Risk
Explanation
The business operates in the fresh brewed and specialty tea market. This sector is highly competitive and can be sensitive to changing consumer trends. While popular, there is a risk that the business model's long-term viability could be affected by shifts in market tastes or intense competition from other beverage concepts. This presents an additional challenge in the context of an already unstable franchise system.
Potential Mitigations
- A business advisor can help you conduct independent market research to assess the long-term consumer demand for specialty tea in your specific territory.
- Evaluating the franchisor's plans for product innovation and menu development is crucial for understanding how they plan to stay competitive.
- Your financial projections, prepared with an accountant, should account for the highly competitive nature of the beverage industry.
Inexperienced Management
Medium Risk
Explanation
While the franchisor's Taiwanese affiliate has operated since 2006, the US franchising entity is relatively new (since 2018) and key support personnel are located in Taiwan. This suggests limited direct experience in managing and supporting a US-based master franchise network. The reliance on overseas personnel for critical functions like training and services could create logistical, cultural, or communication challenges that may impact the quality of support you receive.
Potential Mitigations
- Your due diligence should include direct questions to the franchisor about their specific experience with US franchise law and market conditions; a business advisor can assist.
- Discussing the effectiveness and responsiveness of the Taiwan-based support team with current US master franchisees is essential.
- Your attorney should review the support obligations outlined in the agreements to ensure they are clearly defined and adequate.
Private Equity Ownership
Low Risk
Explanation
This risk was not identified in the FDD Package. Franchisors owned by private equity firms may prioritize short-term returns for investors over the long-term health of franchisees. This can sometimes lead to increased fees, reduced support, or a quick sale of the franchise system, creating uncertainty for franchisees.
Potential Mitigations
- When considering a franchise, it is prudent to have a business advisor help you research the ownership structure and the owner's track record with other brands.
- Your attorney should analyze any clauses that give the franchisor an unrestricted right to sell or assign the franchise agreement.
- Speaking with franchisees about any changes since an ownership change can provide valuable insight.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified in the FDD Package. The franchisor, Presotea USA, properly discloses its parent company. When a franchisor is a subsidiary, it's important that the parent company is disclosed and, if the subsidiary is financially weak, that the parent's financial statements are also provided to give a full picture of the system's stability.
Potential Mitigations
- An accountant should always review the franchisor's financials to assess if it is a subsidiary and determine if a parent company guarantee is in place.
- If the franchisor is thinly capitalized, your attorney should confirm if the parent's financials are required to be disclosed under franchise law.
- A business advisor can help you understand the relationship between a parent and subsidiary and how it might impact your franchise.
Predecessor History Issues
Low Risk
Explanation
This risk was not identified in the FDD Package. Item 1 indicates the franchisor has no predecessors. When a franchisor has acquired a business from a predecessor, it is important to review the history of that predecessor for any potential inherited issues, such as past litigation or franchisee failures.
Potential Mitigations
- Your attorney should always verify the predecessor disclosures in Item 1 of the FDD.
- Independent research on a franchisor's history, with help from a business advisor, can sometimes uncover information about prior business names or structures.
- Questioning long-term franchisees about the system's history can provide valuable context.
Pattern of Litigation
Low Risk
Explanation
This risk was not identified in the FDD Package. Item 3 does not disclose any litigation. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about the franchisor's practices and the health of the system. Conversely, a high number of lawsuits initiated by the franchisor against franchisees could indicate an overly aggressive culture.
Potential Mitigations
- It is always wise to have your attorney review Item 3 of the FDD to analyze the nature and outcome of any disclosed litigation.
- A business advisor can help you research online for any news or franchisee complaints related to legal disputes.
- Asking current and former franchisees about their experiences with disputes within the system provides essential context.
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