Explanation

This risk was not identified. High franchisee turnover can be a major warning sign of systemic problems, such as lack of profitability or poor franchisor support. The data in Item 20 of this FDD shows a low rate of franchise terminations, non-renewals, and other cessations relative to the total number of operating units over the past three years, which suggests a stable franchise system.

Potential Mitigations

• Speaking with current and former franchisees from the lists in Item 20 is always a valuable step for due diligence, which a business advisor can help facilitate.
• An accountant can help you review the Item 20 tables to confirm turnover rates and system growth patterns.
• Your attorney can help you formulate questions for the franchisor regarding any franchisee departures.

Explanation

This risk was not identified. Scooter's is a large and well-established franchise system that has been in operation for over two decades. Investing in a new or unproven system carries higher risks, as the business model may not be validated and the support infrastructure is often underdeveloped. This does not appear to be the case here.

Potential Mitigations

• When evaluating any franchise, it is wise to consult a business advisor to review the franchisor's history and market position.
• Your attorney can help verify the franchisor's operational history as disclosed in Item 1.
• An accountant can analyze the franchisor's financial statements (Item 21) for signs of maturity and stability.

Explanation

This risk was not identified. The business is in the coffee and beverage industry, which is a mature and established market with consistent consumer demand, rather than a niche or trend-based fad. Investing in a fad business carries the risk that demand could rapidly decline, leaving you with a devalued investment and ongoing contractual obligations.

Potential Mitigations

• Engaging a business advisor can help you assess the long-term market trends and competitive landscape for any industry you consider entering.
• Reviewing Item 1 and Item 19 of any FDD provides insight into the business model's history and performance.
• Your financial advisor can help you model the potential return on investment considering market stability.

Explanation

This risk was not identified. Item 2 details the background of the franchisor's key executives, who appear to have extensive experience in the food and beverage industry, franchising, and corporate management. An inexperienced management team can be a significant risk, as it may lead to poor strategic decisions and inadequate support for franchisees.

Potential Mitigations

• It is always prudent to research the backgrounds of the key executives listed in Item 2 of the FDD with the help of a business advisor.
• When speaking with current franchisees, you can ask about their direct experiences and impressions of the leadership team.
• Your attorney can help you verify the information presented in Item 2.

Explanation

This risk was not identified. The FDD does not indicate that the current franchisor acquired the system from a predecessor with a negative history. When a franchise system has been sold, it's important to investigate the predecessor's track record for any signs of franchisee failure, litigation, or bankruptcy that could indicate underlying problems with the business model.

Potential Mitigations

• It is good practice to ask a franchisor about the full history of the brand, including any prior corporate structures, with the help of your attorney.
• A business advisor can help you understand the implications of any past changes in ownership or corporate structure.
• Speaking with long-term franchisees can provide insight into the brand's history under any previous ownership.

Explanation

This risk was not identified in the FDD. Item 3 states there is no litigation that requires disclosure. A pattern of lawsuits filed by franchisees against a franchisor alleging fraud or misrepresentation, or a high number of lawsuits filed by the franchisor against its franchisees, can be a significant red flag about the health and integrity of the franchise relationship.

Potential Mitigations

• Your attorney can conduct independent searches of court records for any litigation involving the franchisor that may not have met the disclosure threshold.
• When speaking with current and former franchisees, it is wise to ask about their awareness of any legal disputes within the system.
• Always review Item 3 carefully with your attorney in any FDD.