Explanation

This risk was not identified in the FDD package. The franchise system is small and experienced a net decrease of one unit in 2024, indicating it is not undergoing rapid growth. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is a neutral factor. However, the lack of growth presents its own set of challenges regarding brand recognition and system development.

Potential Mitigations

• A business advisor can help you evaluate if the franchisor's growth plans are sustainable and supported by adequate infrastructure.
• You should discuss the franchisor’s capacity for providing franchisee support with both new and established franchisees.
• Your accountant can review the franchisor's financial statements to assess if they are reinvesting in the infrastructure needed to support future growth.

Explanation

This risk was not identified in the FDD package. The franchise operates in the pizza and pasta restaurant sector, which is a well-established and long-standing segment of the food service industry. The business model is not based on a new or fleeting trend, reducing the risk that customer demand will disappear.

Potential Mitigations

• Your business advisor can help you research the long-term stability and consumer demand within the specific industry.
• Evaluate the franchisor's plans for product innovation and adaptation to stay relevant in a competitive market.
• Consider the business model's resilience to economic shifts and changing consumer tastes with your financial advisor.

Explanation

This risk was not identified in the FDD package. The key executives listed in Item 2, including the President and CEO, have been with the company since its inception in May 2010. This indicates a stable management team with over a decade of experience operating this specific franchise system. Lack of experience in management does not appear to be a risk here.

Potential Mitigations

• It is still prudent to vet the backgrounds of the management team and understand their specific roles and experience in franchising.
• A conversation with current franchisees can provide insight into the quality and effectiveness of the management team's support.
• Your business advisor can help you assess the overall strength and strategic vision of the leadership team.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchise is owned by its founding principals, not a private equity firm. This can sometimes mean a greater focus on the long-term health of the brand rather than short-term financial returns for outside investors. However, it does not eliminate other financial risks.

Potential Mitigations

• Your attorney should always confirm the ownership structure disclosed in Item 1 of the FDD.
• Discussions with current franchisees can reveal any recent changes in ownership philosophy or operational focus.
• Regardless of ownership, having an accountant review the company's financial health and stability is a critical step.

Explanation

This risk was not identified in the FDD package. Item 1 discloses the existence of affiliates, such as Trademark Holding Company, LLC, but there is no indication of an undisclosed parent company. The provided financial statements in Item 21 are for the consolidated entity, Squisito Franchise Enterprises, Inc. and Subsidiary, providing a clear view of the franchising company's finances.

Potential Mitigations

• Your attorney can help you understand the relationship between the franchisor and any disclosed affiliates.
• If a parent company were to exist and provide a guarantee, an accountant should review its financial statements for stability.
• Ensure all entities you will be contracting with are clearly identified and their roles understood.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD does not list any predecessors for Squisito. This means the historical performance and legal history of the company as disclosed in Items 3, 4, and 20 should be directly attributable to the current franchisor, which simplifies due diligence.

Potential Mitigations

• Your attorney should always verify the predecessor information disclosed in Item 1.
• Independent research, with the help of a business advisor, can sometimes uncover prior business names or related entities.
• Asking long-term franchisees about the history of the company can provide additional context.

Explanation

This risk was not identified in the FDD package. Item 3 states, 'No litigation is required to be disclosed in this Item.' While this is a positive sign, it does not guarantee the absence of all disputes, only those meeting the legal threshold for disclosure. It's important to ask current and former franchisees about their experiences and any non-disclosed disputes.

Potential Mitigations

• Your attorney should confirm that the disclosure complies with federal and state requirements for litigation reporting.
• It is crucial to ask current and former franchisees about any history of disputes, even if not formally litigated.
• A business advisor can help you search public records for any litigation that may not have been disclosed.