Explanation

This specific risk was not identified in the FDD Package. The audited financial statements provided in Exhibit C for the years ending December 31, 2023, and December 31, 2024, show that Shipley Franchise Company LLC (SFC) has positive net income and substantial positive members' equity. An auditor's report does not indicate any concerns about the company's ability to continue as a going concern. A franchisor's financial stability is crucial for its ability to support its franchisees.

Potential Mitigations

• For a comprehensive understanding of the franchisor's financial health, it is wise to have your accountant review the audited financial statements in detail.
• Discussing the financial trends and capital structure with a business advisor can provide additional perspective on the franchisor's long-term stability.
• Your attorney should confirm that the financial statements comply with all federal and state disclosure requirements.

Explanation

This specific risk was not identified in the FDD Package. Shipley Do-Nuts is a long-established brand, with its predecessor offering franchises since 1987. Although the current legal entity, Shipley Franchise Company LLC, was formed more recently in December 2020 following an acquisition, the underlying business system has a very long operational history. An unproven system would typically present higher risks related to brand recognition and operational refinement.

Potential Mitigations

• Speaking with long-term franchisees about their experience with the system over time, including under previous ownership, can provide valuable insight.
• A business advisor can help you evaluate the stability and track record of the brand, regardless of the current corporate structure.
• Your attorney should review the details of the 2020 conversion and acquisition to ensure you understand the current ownership's history.

Explanation

This specific risk was not identified in the FDD Package. The business model, which specializes in the sale of donuts, kolaches, and coffee, is part of a well-established and long-standing segment of the quick-service food industry. There is no indication that the concept is based on a recent or short-lived trend, which mitigates the risk of a sudden decline in consumer demand due to shifting tastes.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer trends in the coffee and bakery sector in your specific market.
• Reviewing local competition with a real estate professional will help you understand the sustained demand for these types of products.
• Your accountant can assist in modeling financial scenarios based on stable, long-term market assumptions rather than trendy projections.

Explanation

This specific risk was not identified in the FDD Package. The executive team detailed in Item 2 has extensive prior experience in the franchise and restaurant industries. Key personnel have held senior positions at major national brands such as Pizza Hut, Wingstop, Denny's, and Krispy Kreme. This level of relevant experience suggests the management team is well-equipped to manage a franchise system, which is a positive factor for franchisee support and strategic direction.

Potential Mitigations

• A business advisor can help you further research the track record and reputation of the key executives at their prior companies.
• When speaking with current franchisees, you should still inquire about their direct experiences with the management team's accessibility and effectiveness.
• Your attorney can confirm that the experience listed in Item 2 is accurately and completely disclosed.

Explanation

This specific risk was not identified in the FDD Package. Item 1 of the FDD clearly discloses the parent company structure, identifying SDC Holdco, LLC, SDC Parent, LLC, and ultimately the controlling interest of Peak Rock Capital. The franchisor's financials are provided, and since there is no indication that a parent company guarantees the franchisor's obligations, the non-disclosure of parent financials does not appear to be an issue.

Potential Mitigations

• Your accountant should confirm that the financial statements provided are sufficient for a thorough analysis of the entity you are contracting with.
• Your attorney can review the corporate structure outlined in Item 1 to ensure it is transparent and understandable.
• Asking the franchisor to explain the role of each parent entity in the franchise relationship can provide additional clarity.

Explanation

This specific risk was not identified in the FDD Package. The FDD discloses a predecessor entity in Item 1 and includes relevant litigation history involving that predecessor in Item 3. There is no indication that the predecessor's history, including any financial or legal issues, has been inadequately disclosed. A complete history is important for you to understand the full background of the franchise system you are joining.

Potential Mitigations

• When speaking with long-tenured franchisees, asking about their experiences under the predecessor entity can provide valuable context.
• A franchise attorney can help you perform public records searches to verify the disclosed information about the predecessor.
• Your business advisor can help assess how the transition from the predecessor to the current franchisor may have impacted the system.