Explanation

This risk was not identified. The data in Item 20 indicates the franchise system has been shrinking over the last three years, not growing rapidly. While this avoids the risks of overstretched support from rapid expansion, it presents the opposite concern of system decline, which is addressed in the "High Franchisee Turnover" risk.

Potential Mitigations

• A business advisor can help you analyze market trends to understand the growth potential of a franchise concept.
• Your accountant should review the franchisor’s financials to assess whether they have adequate capital to support future growth initiatives.
• Discuss the franchisor’s long-term growth and support strategy with your attorney before investing.

Explanation

This risk was not identified. Smashburger began franchising in 2008 and, according to Item 20, had 194 total restaurants at the end of 2024. Therefore, it is an established system, not a new or unproven one. Understanding a system's maturity is important as newer systems may carry higher risks related to unproven models and support structures.

Potential Mitigations

• A business advisor can help you evaluate the track record and maturity of any franchise system you consider.
• For any franchise, it is wise to have an accountant review the franchisor's financial statements for at least three years to assess stability.
• Your attorney can help you understand the legal history and operational experience of the franchisor's management team as disclosed in Items 2 and 3.

Explanation

This risk was not identified. The "better burger" restaurant concept is a well-established segment within the fast-casual dining industry and is not considered a short-term fad. Assessing whether a business concept has long-term consumer demand is a key part of due diligence, as investing in a fad-based business can be very risky once consumer interest wanes.

Potential Mitigations

• A business advisor can help you research the long-term consumer demand and competitive landscape for any industry you consider entering.
• Reviewing a franchisor's history of product innovation and adaptation in Item 11 can provide insight into their ability to evolve with market trends.
• Your accountant can help you analyze the financial sustainability of a business model beyond its current popularity.

Explanation

This risk was not identified. The executive team described in Item 2 appears to have significant and relevant experience in the restaurant and franchise industries, including long tenures with Smashburger and its parent company. Assessing the experience of the franchisor's management is crucial, as an inexperienced team can increase the risk of poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• It is always prudent to review the executive backgrounds in Item 2 with a business advisor to assess their specific experience in franchising.
• Asking current franchisees about their perception of management's competence and support is a critical due diligence step.
• Your attorney can help you investigate the business history of the key individuals listed in the FDD.

Explanation

This risk was not identified. Item 1 provides a detailed description of the franchisor's parent companies, tracing ownership up to Jollibee Foods Corporation. A complete disclosure of the ownership structure is required by law and is essential for you to assess the financial stability and resources backing the franchise system.

Potential Mitigations

• An attorney should always verify that the franchisor has fully disclosed its parent companies and affiliates as required in Item 1.
• If a franchisor is a subsidiary, an accountant should review the parent company's financial statements if they are provided or required.
• A business advisor can help you research the reputation and stability of any parent company disclosed.

Explanation

This risk was not identified, as Item 1 does not disclose any predecessors for Smashburger. Understanding the history of any predecessor is important because it can reveal inherited issues, past litigation, or franchisee failures that may not be apparent when looking only at the current franchisor entity.

Potential Mitigations

• Your attorney should always carefully review Item 1 of an FDD to identify any disclosed predecessors.
• If a predecessor is identified, a business advisor can help you research its history and reputation.
• Speaking with long-term franchisees can provide insight into their experiences under any previous ownership.