Explanation

This risk was not identified in the FDD package. Item 20 data indicates the number of franchised outlets has been decreasing over the past three years, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support. While its absence here is positive, a shrinking system, as is the case here, presents its own set of risks regarding brand health and market presence.

Potential Mitigations

• A business advisor can help you assess whether the franchise system's size and current rate of change align with your investment goals.
• Discussing the system's development plans with the franchisor can provide insight into their future strategy for growth or stability.
• Your accountant should review the franchisor's financial capacity to support any future growth initiatives.

Explanation

This risk was not identified. Schlotzsky's Franchisor SPV LLC (Schlotzsky's) is part of a large, established system with a long operating history, franchising since 2017 with a predecessor franchising since 2006. An unproven system would carry higher risks related to unverified business models, undeveloped support structures, and minimal brand recognition. The franchisor's established nature is a positive factor, though other risks related to its complex structure exist.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your business advisor assess the maturity and track record of the specific system.
• An accountant should always review the financial statements to gauge the stability that comes with experience.
• Your attorney can help you understand the history of the franchisor and its predecessors as detailed in Item 1.

Explanation

This risk was not identified. The Schlotzsky's brand is a well-established concept in the quick-service restaurant industry, focusing on sandwiches, pizzas, and salads, rather than a niche product tied to a potentially short-lived trend. A business based on a fad carries a high risk of failure once consumer interest wanes. The established nature of this food category suggests more stable, long-term consumer demand, which is a significant mitigating factor against this particular risk.

Potential Mitigations

• A business advisor can help you research the long-term market demand and competitive landscape for any franchise concept.
• It is wise to assess a franchisor's plans for innovation and adaptation to stay relevant in a changing market.
• Your financial advisor can help evaluate the sustainability of a business model beyond current trends.

Explanation

This risk was not identified. Item 2 discloses the business experience of the key management personnel. The executive team at Schlotzsky's and its parent, GoTo Foods, appears to have extensive experience in the restaurant and franchise industries, with many executives holding senior roles at other major franchise systems. This level of experience can be a significant asset in providing effective support and strategic direction, which is a positive attribute for a prospective franchisee.

Potential Mitigations

• It is always important to have your business advisor help you vet the management team's background and specific experience in both the industry and in managing franchise systems.
• Speaking with existing franchisees can provide valuable insight into the quality and effectiveness of the current management team's support.
• Your attorney can help you understand the roles of the individuals listed in Item 2.

Explanation

This risk does not appear to be present. Item 1 and Item 21 of the FDD disclose the parent companies, GoTo Foods LLC and GoTo Foods Systems LLC. The FDD package also includes the financial statements for these parent entities as required. A failure to disclose a parent company or its financials when required would be a significant red flag, as it could obscure the true financial health and stability of the overall organization that supports your franchise.

Potential Mitigations

• An experienced franchise attorney can help you verify the corporate structure and ensure all relevant parent and affiliate companies are properly disclosed.
• Your accountant should confirm that if a parent company provides a guarantee, its financial statements are included and reviewed.
• Always question the relationship between the franchisor and other entities mentioned in the FDD with your business advisor.

Explanation

This risk was not identified. Item 1 of the FDD discloses that Schlotzsky's Franchise LLC ("SFL") is the predecessor to the current franchisor and provides its history. The document appears to provide the necessary historical context. A failure to disclose or downplaying the history of a predecessor could obscure important information about the system's past challenges, litigation history, or franchisee success rates, preventing a fully informed investment decision.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review the information on predecessors in Items 1, 3, and 4.
• If a system was acquired from a predecessor, it can be beneficial to research the predecessor's public track record with the help of a business advisor.
• When speaking with long-term franchisees, asking about their experience under any previous ownership is a valuable due diligence step.