Rusty Taco Logo

Rusty Taco

RustyTaco Franchising, LLC
https://www.rustytaco.com
1-972-467-8095
5412 W. Plano Pkwy., Suite 100, Plano, Texas 75093

Initial Investment Range

$528,400 to $1,127,950

Franchise Fee

$30,000 to $75,000

The franchise is the right to develop a restaurant that offers freshly prepared food made with quality, fresh ingredients inspired by the flavors of Mexico and Texas, along with an assortment of alcoholic and non-alcoholic beverages under the Rusty Taco trade name, trademark, and business system in an atmosphere designed to be a neighborhood gathering place.

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Rusty Taco April 24, 2025 FDD Risk Analysis

Free FDD Library AI Analysis Date: July 16, 2025

DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.

1

Franchisor Stability Risks

Start Here
Total: 10
4
2
4

Disclosure of Franchisor's Financial Instability

High Risk

Explanation

Rusty Taco Franchising, LLC (Rusty Taco LLC) explicitly warns in its "Special Risks" section that its financial condition may impact its ability to provide support. This is confirmed by audited financials in Exhibit A, which show a net loss of over $1 million for 2024 and significant negative net worth. The company appears reliant on cash infusions from its parent to continue operating. This creates a significant risk that promised support and services may not be available to you.

Potential Mitigations

  • A franchise accountant should thoroughly review the franchisor's financials, including all footnotes and year-over-year trends, to assess its viability.
  • It is advisable to discuss with your attorney the implications of a franchisor's weak financial state on its contractual obligations to you.
  • Ask your business advisor to help you develop contingency plans in case the franchisor's support diminishes due to financial distress.
Citations: Item 21, FDD Special Risks, Exhibit A

High Franchisee Turnover

High Risk

Explanation

Item 20 data reveals a high rate of franchised outlets leaving the system. In 2024, five units were terminated, representing 15% of the outlets at the start of the year. Prior years also show significant numbers of closures and non-renewals. This turnover rate could indicate systemic problems, such as franchisee unprofitability or dissatisfaction. The franchisor also discloses using confidentiality agreements, which may limit the information you can obtain from former franchisees.

Potential Mitigations

  • Discussing the high turnover rates with a significant number of current and former franchisees is a critical due diligence step.
  • Your attorney can help you understand the implications of the franchisor's use of confidentiality agreements with former franchisees.
  • An accountant should assist you in creating conservative financial projections, considering the possibility that high turnover reflects profitability challenges.
Citations: Item 20

Rapid System Growth

High Risk

Explanation

The franchisor shows notable system growth, with 8 new stores opened in 2024 and 5 more projected. This expansion is occurring while the company is experiencing significant operating losses and has negative net worth, as shown in Item 21. This situation creates a risk that the franchisor's support infrastructure, such as training and field support, may be strained and unable to keep pace with the needs of a growing number of franchisees.

Potential Mitigations

  • In discussions with current franchisees, a business advisor can help you formulate questions about the quality and timeliness of franchisor support.
  • Your accountant should analyze the franchisor's financials in Item 21 to assess if they have the resources to support this growth.
  • Legal counsel should review the franchisor's contractual support obligations to determine if they are specific and enforceable.
Citations: Items 11, 20, 21

New/Unproven Franchise System

High Risk

Explanation

The franchisor entity, Rusty Taco LLC, was formed in late 2022 and began franchising in May 2023, giving it a very limited operating history. This is highlighted as a "Special Risk." While the brand is older, this new franchising entity lacks a long track record of supporting franchisees. This newness, combined with its poor financial condition, increases the risk of unproven systems, inadequate support, and potential instability for you as an investor.

Potential Mitigations

  • A business advisor can help you conduct extensive due diligence on the management team's prior experience in both the industry and in franchising.
  • Your accountant should scrutinize the franchisor's capitalization and business plan to assess its long-term viability.
  • It is important to contact the earliest franchisees under this new entity to learn about their experiences with support and systems.
Citations: Items 1, 2, 11, 20, 21, FDD Special Risks

Possible Fad Business

Low Risk

Explanation

This specific risk was not identified in the FDD Package. A fad business is one tied to a short-lived trend, which can be risky for a long-term franchise commitment. When a fad ends, customer demand can disappear, but your contractual obligations to pay fees often remain. Evaluating a concept's long-term consumer appeal and its ability to adapt is crucial, as a decline in popularity could jeopardize your entire investment.

Potential Mitigations

  • A business advisor can help you research the industry to assess the long-term market demand and sustainability of the products or services offered.
  • Understanding the franchisor's plans for future innovation and adaptation is important and should be discussed with them directly.
  • An accountant can help you model the financial risks of a potential decline in consumer trends on your business's profitability.
Citations: Not applicable

Inexperienced Management

Medium Risk

Explanation

While some management personnel have experience with the brand under its predecessor, the franchisor entity itself is very new (formed in 2022). Furthermore, key personnel like the President and Director of Marketing have only been in their roles since May 2024 and August 2024, respectively. This combination of a new company and new key leaders presents a risk that the management team may lack collective experience in guiding this specific franchise system, potentially impacting strategic direction and support.

Potential Mitigations

  • A business advisor can help you thoroughly research the specific franchising and industry experience of each member of the executive team.
  • It's wise to speak with current franchisees to gauge their confidence in the management team's leadership and strategic direction.
  • Your attorney should review the backgrounds of the key personnel listed in Item 2 to identify any potential gaps in relevant experience.
Citations: Items 1, 2

Private Equity Ownership

Medium Risk

Explanation

Item 1 discloses that the franchisor's ultimate parent is Gala Family, LP, which is part of Gala Capital Partners, a private equity firm. Private equity ownership can introduce risks, as their primary goal is often a high return on investment over a fixed period. This may lead to decisions that benefit short-term profitability, such as increasing fees or cutting support services, potentially at the expense of your long-term success.

Potential Mitigations

  • Researching the private equity firm's history with other franchise brands they have owned can provide valuable insight; a business advisor can assist.
  • Speaking with franchisees who have operated under the current ownership can reveal any changes in support or operational focus.
  • Your attorney should carefully review any clauses in the agreement that relate to the sale or assignment of the franchise system.
Citations: Item 1

Non-Disclosure of Parent Company

Low Risk

Explanation

This specific risk was not identified in the FDD Package. The franchisor appropriately discloses its parent companies in Item 1. However, the financials of those parent companies are not provided, and there is no guarantee from them for the franchisor's obligations. Your investment's stability relies solely on the performance of the franchisor entity, which, as noted elsewhere, is in a weak financial position.

Potential Mitigations

  • An accountant should confirm that the provided financials are for the correct legal entity you are contracting with.
  • Your attorney should determine if a parental guarantee of the franchisor's obligations can be negotiated.
  • A business advisor can help you assess the risks of dealing with a thinly capitalized subsidiary without a financial backstop from its parent.
Citations: Item 21, Exhibit A

Predecessor History Issues

Low Risk

Explanation

This risk does not appear to be present. The FDD's Item 1 clearly identifies the predecessor entity, Rusty Taco, Inc., and explains that the current franchisor's parent acquired its assets in December 2022. While there is a predecessor, the disclosure itself appears to be straightforward. The primary risks stem from the current entity's performance, not from a lack of disclosure about its history.

Potential Mitigations

  • Your attorney should confirm that the asset transfer from the predecessor to the current franchisor was handled properly.
  • When speaking with long-term franchisees, a business advisor can help you ask about their experiences under the previous ownership structure.
  • An accountant can review any available historical data to identify trends that may have carried over from the predecessor.
Citations: Item 1

Pattern of Litigation

Low Risk

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. This lack of reported legal disputes with franchisees can be a positive sign. However, it is important to remember that this only covers litigation meeting specific disclosure requirements and does not guarantee a conflict-free relationship. Ongoing due diligence is still necessary to understand the health of franchisee-franchisor relations.

Potential Mitigations

  • Your attorney can help you perform independent searches for litigation that may not have met the technical disclosure requirements of Item 3.
  • Engaging with a broad group of current and former franchisees is a good way to uncover any history of disputes that did not escalate to litigation.
  • A business advisor can help you ask targeted questions about the franchisor's dispute resolution process and typical outcomes.
Citations: Item 3
2

Disclosure & Representation Risks

Total: 15
7
1
7

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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3

Financial & Fee Risks

Total: 10
4
3
3

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

4

Legal & Contract Risks

Total: 16
6
6
4

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

5

Territory & Competition Risks

Total: 5
2
2
1

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

6

Regulatory & Compliance Risks

Total: 10
4
5
1

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

7

Franchisor Support Risks

Total: 4
2
1
1

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

8

Operational Control Risks

Total: 12
4
6
2

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

9

Term & Exit Risks

Total: 18
7
8
3

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.

10

Miscellaneous Risks

Total: 2
0
2
0

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

Unlock Full Risk Analysis

Purchase the complete risk review to see all 102 risks across all 10 categories.