Explanation

The FDD does not indicate that the franchise system is growing at a rate that would be considered dangerously rapid. System growth can strain a franchisor's ability to provide adequate support to all franchisees if it outpaces the expansion of their support infrastructure. A prospective franchisee should still evaluate whether the franchisor's current support systems, described in Item 11, seem robust enough for its current size and planned growth.

Potential Mitigations

• It is still prudent to ask the franchisor about their plans for scaling support infrastructure to match future growth.
• A conversation with your business advisor can help evaluate if the franchisor's corporate team seems equipped to handle system expansion.
• Your attorney can help you question existing franchisees about the current quality and responsiveness of franchisor support.

Explanation

This risk was not identified in the FDD package. The concept of a sushi restaurant is well-established and not typically considered a fad. However, any business's long-term success depends on its ability to adapt to changing consumer tastes and economic conditions. A prospective franchisee should always consider whether a specific brand's theme or menu has lasting appeal in their local market beyond current trends.

Potential Mitigations

• Engage a business advisor to research the long-term sustainability of the specific restaurant concept in your local market.
• It is wise to assess the franchisor's commitment to menu innovation and system evolution to ensure continued relevance.
• Your own market research can help determine if the customer base for this specific style of restaurant is stable or transient.

Explanation

This risk was not identified in the FDD package. The executive team described in Item 2 appears to have significant experience in the restaurant industry and in franchising. Assessing management's background is crucial because inexperienced leadership can lead to poor strategic decisions and inadequate support for franchisees. It is important that the franchisor team has expertise in both the specific industry and in managing a franchise network.

Potential Mitigations

• It is still a good practice to discuss the management team's performance and accessibility with current franchisees.
• Your business advisor can help you further research the professional backgrounds of the key executives listed in Item 2.
• Your attorney should confirm that there are no undisclosed changes in key management since the FDD was issued.

Explanation

This risk was not identified in the FDD package. The franchisor's parent company, Bold Restaurant Brands LLC, is disclosed in Item 1. When a franchisor is a subsidiary, it is important to understand the financial strength and influence of the parent company, as it can significantly impact the stability and support available to the franchise system. In this case, the necessary disclosures appear to have been made.

Potential Mitigations

• Your accountant should still review the relationship between the franchisor and its parent to assess any financial dependencies.
• It is a good practice for your attorney to confirm the nature of any guarantees or support provided by the parent entity.
• In discussions with the franchisor, you could ask about the parent company's long-term vision for the brand.

Explanation

This risk was not identified in the FDD package. The franchisor discloses a predecessor, RNR Sushi Franchise, LLC, and provides details of the asset purchase in 2020. A clear disclosure of predecessor history is important for you to understand the full background of the franchise system, including any inherited issues. The document appears to provide the necessary information regarding the system's history.

Potential Mitigations

• It remains a valuable exercise to ask long-tenured franchisees about their experiences under the predecessor's management.
• Your attorney can help you understand the implications of the asset purchase and what, if any, obligations were assumed by the current franchisor.
• A business advisor could assist in researching the public record of the predecessor for any additional information.

Explanation

The FDD states that there is no litigation required to be disclosed in this item. A clean litigation record is a positive sign, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can indicate systemic problems within a franchise. The absence of such disclosures suggests a lower risk of becoming involved in similar disputes.

Potential Mitigations

• Although no litigation is disclosed, it is still wise to ask current and former franchisees about any disputes they may be aware of.
• Your attorney can conduct an independent search for litigation involving the franchisor as a precautionary measure.
• Maintaining open communication and meticulously documenting all interactions can help prevent future disputes.