Explanation

This risk was not identified in the FDD package. Item 20 data shows the franchise system has been shrinking, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support, training, and quality control. When a system expands too quickly, new franchisees may find the promised support infrastructure is underdeveloped or overwhelmed, which can negatively affect their business launch and ongoing operations.

Potential Mitigations

• Your accountant can review the franchisor's financial statements in Item 21 to assess whether they have the capital and resources to support their stated growth plans.
• A discussion with your business advisor about the franchisor's hiring and support infrastructure plans is a valuable step in due diligence.
• Inquire with recent franchisees from the Item 20 list about their experience with the quality and timeliness of the support they received during their opening phase.

Explanation

This risk was not identified in the FDD package. PM began offering franchises in 2008 and is part of the large, established FAT Brands portfolio. A new or unproven system presents a higher risk because its business model, brand recognition, and support structures are not yet time-tested. Franchisees in such systems may face a higher likelihood of system-wide failure or receive underdeveloped support as the franchisor learns the business of franchising.

Potential Mitigations

• For any franchise, it is wise to have your attorney investigate the business and franchising experience of the key management team described in Item 2.
• A business advisor can help you research the history of the brand and its performance in various markets.
• Speaking with the earliest franchisees in a system can provide critical insight into how the franchisor has evolved and handled challenges.

Explanation

This risk was not identified in the FDD package. The core business of selling pretzels is a long-established concept, not a recent trend. Investing in a fad business is risky because consumer demand may disappear quickly, leaving you with a long-term franchise agreement for a business with a short-term appeal. This could lead to declining sales and potential business failure once the novelty wears off, even though your contractual obligations to the franchisor would continue.

Potential Mitigations

• Your business advisor can help you research the long-term market demand and competitive landscape for any product or service.
• When evaluating any business, consider its ability to adapt to changing consumer tastes and economic conditions with your financial advisor.
• It is prudent to review the franchisor's history of innovation and product development in Item 11.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the management team of the parent company, FAT Brands, consists of individuals with extensive experience in the restaurant and franchising industries. Inexperienced management can be a significant risk, as they may lack the specific knowledge required to run a successful franchise system, provide effective support, or make sound strategic decisions, potentially jeopardizing the entire network.

Potential Mitigations

• A business advisor can help you independently research the backgrounds of the key executives listed in Item 2.
• A conversation with existing franchisees about their perception of the management team's competence and support is a critical due diligence step.
• Your attorney should verify that the experience described in Item 2 is relevant to the specific industry and the franchise model.

Explanation

This risk was not identified in the FDD package, as the parent companies are clearly disclosed in Item 1. When a franchisor is a subsidiary, the financial health of its parent can be critical. If the parent's financials are not disclosed when they should be (e.g., if the parent guarantees the franchisor's performance or is a key supplier), you may lack a complete picture of the overall financial stability and resources backing your franchise.

Potential Mitigations

• Your accountant should always confirm the identity of any parent companies or guarantors mentioned in Item 1 or Item 21.
• If a parent company's guarantee is offered, it is vital that your attorney ensures the parent's financial statements are included and reviewed.
• A business advisor can help you research the parent company to understand its business and financial reputation.

Explanation

This risk was not identified in the FDD package. The document discloses its history and acquisition by FAT Brands, but does not indicate significant negative history from predecessors. When a franchisor has predecessors, it's important to know their history, as past problems like litigation, bankruptcy, or high franchisee failure rates can sometimes carry over or indicate underlying issues with the system that the current franchisor has inherited.

Potential Mitigations

• Your attorney should carefully review Items 1, 3, and 4 of any FDD for information regarding predecessors.
• Consider asking your business advisor to research the business reputation and history of any disclosed predecessor entities.
• When speaking with long-term franchisees, it is useful to ask about their experiences under any previous ownership.