Explanation

This risk was not identified in the FDD package. Rapid system growth can strain a franchisor's ability to provide adequate support. If a franchisor expands too quickly without scaling its support infrastructure, new and existing franchisees may suffer from a lack of training, site selection assistance, and operational guidance, even while they continue to pay full royalties.

Potential Mitigations

• It is prudent to ask the franchisor about their growth plans and the concurrent scaling of their support staff.
• A business advisor can help you evaluate if the franchisor's infrastructure appears robust enough to handle its projected growth.
• Discussing the quality and timeliness of support with a range of existing franchisees, both new and tenured, is a key due diligence step.

Explanation

The Schmizza concept was founded in 1993 and the current franchisor entity was formed in 2001, indicating a long operational history. Item 2 shows that key executives have many years of experience with the brand and in the industry. The system is established, not new or unproven. Therefore, this specific risk is not present.

Potential Mitigations

• When evaluating any franchise, it is wise to have a business advisor help you assess the depth of the management team's experience in both the specific industry and in franchising.
• An accountant's review of the financial statements can help determine if the company has sufficient capital and a history of profitability.
• Your attorney can help you understand the risks associated with an emerging brand versus an established one.

Explanation

This risk was not identified in the FDD package. Pizza restaurants are a well-established and mature industry, not typically considered a fad. However, any business concept can be subject to changing consumer tastes. It is important to assess if the brand has demonstrated an ability to evolve and stay relevant over time.

Potential Mitigations

• Engaging a business advisor to research long-term market trends for the specific industry can help assess its stability.
• It's beneficial to ask the franchisor about their history of innovation and plans for future menu and concept development.
• With your accountant, analyze how the business might perform during different economic cycles to gauge its resilience.

Explanation

This risk was not identified in the FDD package. Item 2 indicates that the key executives, including the Chairman/CEO and Director of Store Operations, have extensive, long-term experience with the Schmizza brand, its affiliates, and the pizza industry, in some cases dating back to the concept's founding in 1993. This suggests an experienced management team is in place.

Potential Mitigations

• A thorough review of the management team's biographies in Item 2 with a business advisor is a crucial step in due diligence.
• Asking existing franchisees about their direct experiences with the management team can provide valuable insight into their competence and support.
• Your attorney can help you frame questions to the franchisor about their team's specific experience in supporting franchisees.

Explanation

This risk was not identified in the FDD package. Item 1 and Item 2 do not indicate that the franchisor is owned or controlled by a private equity firm. The ownership appears to be held by individuals involved in the business long-term. Therefore, the specific risks associated with a PE firm's potentially short-term investment horizon do not appear to be present.

Potential Mitigations

• Should you encounter a PE-owned franchisor, have a business advisor help you research the firm's history with other franchise brands.
• Your attorney should analyze the transferability clauses in the Franchise Agreement to see if the system can be sold without your consent.
• It is wise to ask franchisees of a PE-owned brand what changes have occurred since the acquisition.

Explanation

This risk was not identified in the FDD package. Item 1 describes the history of the concept, including its original founding and the formation of the current franchisor entity, but it does not list any legal predecessors from which it acquired the system's assets. Therefore, risks associated with a hidden or negative predecessor history do not appear to be present.

Potential Mitigations

• When evaluating a franchise, having your attorney carefully review the predecessor history in Item 1 is a key due diligence step.
• If a predecessor is listed, a business advisor can help you research that entity's public record and reputation.
• Contacting long-term franchisees to ask about their experience under any previous ownership is always recommended.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." This indicates there is no recent history of the type of litigation involving claims of fraud, misrepresentation, or franchise law violations that would signal a pattern of disputes with franchisees. This lack of disclosed litigation is a positive factor.

Potential Mitigations

• Although no litigation is disclosed, you can still perform independent online searches for the franchisor's name to see if any public complaints or news stories exist.
• Your attorney can advise on how to interpret Item 3 disclosures in any FDD you review.
• Discussing the franchisor's relationship with its franchisees during due diligence calls can provide further context.