Explanation

The FDD does not indicate a high rate of franchisee turnover. Item 20 tables show only one unit ceased operations in the last three years, with no terminations or non-renewals. While this is a positive sign, it's important to remember this is a very young system, so the historical data is limited. High turnover is generally a major red flag indicating potential systemic problems.

Potential Mitigations

• It is still valuable to have your business advisor help you contact a broad sample of franchisees listed in Item 20 to discuss their satisfaction.
• You should ask the franchisor about the circumstances surrounding the one unit that ceased operations.
• An attorney can help you understand the contractual reasons a franchisor can terminate an agreement, which influences future turnover risk.

Explanation

This risk was not identified in the FDD. Item 2 indicates that the key executives of the franchisor possess significant experience within the food service industry and with the Project LeanNation brand itself. Generally, inexperienced management can be a major risk, as it may lead to poor strategic decisions, weak support systems, and a lack of understanding of franchisee needs.

Potential Mitigations

• It is still good practice to discuss the management team's accessibility and effectiveness with current franchisees.
• A business advisor can help you research the professional backgrounds of the key personnel listed in Item 2.
• During discovery, you can ask management about their long-term vision for the brand.

Explanation

The FDD does not indicate that the franchisor is owned by a private equity firm. This risk matters because PE ownership can sometimes lead to a focus on short-term profits over the long-term health of the brand and its franchisees. Potential risks can include cuts in franchisee support, increased fees, or a rapid sale of the system.

Potential Mitigations

• Your attorney should always confirm the ownership structure detailed in Item 1.
• It is prudent to ask the franchisor about any long-term plans for selling the company.
• Understanding the assignment clause in the Franchise Agreement with your attorney is important regardless of current ownership.

Explanation

This risk does not appear to be present. Item 1 discloses the franchisor's affiliates but does not list a parent company. When a franchisor is a subsidiary, the financial health of its parent can be critical, especially if the parent guarantees obligations or controls key aspects of the system. Failure to disclose a parent or provide its financials when required can obscure significant risks.

Potential Mitigations

• Your attorney can help you verify the corporate structure and ensure all relevant entities have been properly disclosed.
• An accountant should review any disclosed affiliate relationships and transactions for potential risks.
• It's always wise to ask the franchisor to draw an organizational chart to visualize the relationships between all related companies.

Explanation

The FDD does not disclose any "predecessors" from which PLN Franchising acquired the business. This risk is important because a predecessor's history of litigation, bankruptcy, or high franchisee failure rates can indicate underlying problems with the business system that may have been inherited by the current franchisor. A clean history is positive, but this company is also very new.

Potential Mitigations

• Your attorney should confirm the information in Item 1 regarding the company's formation and history.
• A business advisor can help you research the operational history of the brand itself, even if there is no legal predecessor.
• Asking early franchisees about the system's history and evolution can provide valuable context.

Explanation

The FDD discloses no history of litigation against the franchisor in Item 3. This is a positive indicator. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag. It may suggest systemic problems with the franchisor's operations, sales practices, or relationship with its franchisees.

Potential Mitigations

• Even with no disclosed litigation, it is good practice for your attorney to conduct an independent public records search for any lawsuits.
• Discussing any past or current disputes with a range of franchisees is a key part of due diligence.
• Understanding the dispute resolution clauses in the Franchise Agreement with your attorney is crucial for assessing future risk.