Explanation

This risk, concerning a high rate of franchisee terminations or failures, was not identified in the FDD package. Item 20 tables show that Scoop Brothers Franchising, LLC (Scoop Brothers) is a new franchisor and had zero operating franchisees as of the end of the last fiscal year. While this means there is no negative turnover history, it also means there is no track record of franchisee success to evaluate.

Potential Mitigations

• Your business advisor should help you assess the risks of investing in a new, unproven franchise system with no operating history.
• Discuss the franchisor's franchisee selection and support plans with them directly to understand how they plan to ensure future success.
• It is important to have your accountant help you create conservative financial projections, as there is no franchisee performance data to rely on.

Explanation

This risk was not identified in the FDD package. As a new franchise system with no franchisees yet, Item 20 data does not show any signs of rapid growth. Uncontrolled growth can strain a franchisor's ability to provide adequate support, training, and quality control to its franchisees. The franchisor projects opening only one new franchised outlet in the next fiscal year.

Potential Mitigations

• Your business advisor can help you monitor the franchisor's growth plans and assess if their support infrastructure is scaling appropriately.
• Regularly communicating with other franchisees, once the system grows, can provide insight into the quality of franchisor support.
• An attorney can review the franchisor's stated obligations in the Franchise Agreement to ensure support commitments are clearly defined.

Explanation

This risk was not identified in the FDD package. FDD Item 1 discloses the franchisor is owned by B. Rugged Brands, Corp., whose principals appear to be the same as the franchisor's management. There is no indication of ownership by a private equity firm. Such ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchisees and the brand.

Potential Mitigations

• It is good practice to have an attorney review the ownership structure disclosed in Item 1 to confirm who controls the franchisor.
• Your business advisor can help you research the background of the franchisor's parent company and its leadership.
• Always ask current franchisees about their experiences with the ownership and management team.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses the parent company, B. Rugged Brands, Corp. A failure to disclose a parent company, especially one that guarantees the franchisor's performance or is a key supplier, can hide financial instability or other risks from a prospective franchisee.

Potential Mitigations

• Your attorney should always verify that the ownership and affiliate structure disclosed in Item 1 is complete and consistent with other information.
• If a parent company is disclosed, an accountant should assess whether that parent's financial statements should have been included.
• Understanding the full corporate structure helps your business advisor assess where ultimate control and potential risks lie.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD states that the franchisor has no predecessors. Hidden or incompletely disclosed negative history from a predecessor entity—such as litigation, bankruptcy, or high franchisee failure rates—can obscure significant systemic problems from a potential investor.

Potential Mitigations

• An attorney should always review Item 1 carefully for any mention of predecessors or business acquisitions.
• If a predecessor is mentioned, it is crucial to have a business advisor help you research its history independently.
• Asking long-tenured franchisees about their experiences under any previous ownership is a key due diligence step.

Explanation

This risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, can be a major red flag indicating systemic problems with the franchisor or its business model.

Potential Mitigations

• It is wise to have an attorney review Item 3 to confirm no litigation is disclosed and to understand the types of lawsuits that require disclosure.
• A business advisor can guide you in conducting independent online searches for any news or legal actions involving the franchisor.
• Speaking with current and former franchisees can often reveal disputes that may not have resulted in formal litigation.