Explanation

This risk was not identified in the FDD package. Rapid, uncontrolled growth can strain a franchisor's ability to provide adequate support. However, the data in Item 20 indicates that the Steak Escape system is shrinking, not growing rapidly. Therefore, the risk of support systems being overwhelmed by rapid expansion does not currently appear to be a primary concern. You should still monitor future growth if you invest.

Potential Mitigations

• A business advisor can help you monitor the system's future growth rate against the franchisor's hiring of support staff.
• Understanding the franchisor's strategic plan for growth, if any, requires a direct conversation with their management team.
• Your attorney can help you understand the support obligations detailed in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. Escape Enterprises has been franchising for many years, since at least 1996, indicating a long operational history. A new or unproven system presents risks like lack of brand recognition and untested support structures. While there are other concerns, such as system shrinkage and management changes, the franchise concept itself is not new or unproven.

Potential Mitigations

• Speaking with long-term franchisees about the evolution of the system can provide valuable historical context.
• A business advisor can help you evaluate the franchisor's track record and brand recognition in your specific market.
• Your accountant can assess the financial history to understand the company's long-term performance.

Explanation

This risk was not identified in the FDD package. A 'fad' business is one tied to a fleeting trend, which can threaten long-term viability. Steak Escape, specializing in sandwiches, fries, and salads, operates in the well-established quick-service restaurant sector. While competitive, the core product offering does not appear to be based on a short-term fad, suggesting a more stable underlying consumer demand.

Potential Mitigations

• A business advisor can help you analyze the long-term consumer trends in the quick-service sandwich industry.
• Reviewing the franchisor's history of product innovation and adaptation in Item 11 provides insight into their ability to stay relevant.
• Your accountant can help you assess the financial resilience of this type of business model through various economic cycles.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor, Escape Enterprises, Ltd., is a majority-owned subsidiary of its parent company, Escape Enterprises, Inc. There is no disclosure of ownership by a private equity firm. Private equity ownership can sometimes lead to a focus on short-term returns over the long-term health of the franchise system.

Potential Mitigations

• Your attorney can help verify the corporate ownership structure and identify the ultimate controlling parties.
• A business advisor can help you research the ownership history of the franchisor for any past private equity involvement.
• Understanding the franchisor's long-term strategic goals is a key topic to discuss with their management team.

Explanation

This risk was not identified in the FDD package. Item 1 clearly discloses that Escape Enterprises, Ltd. is majority-owned by its parent company, Escape Enterprises, Inc. (EEI). The franchisor has included its own audited financial statements in Item 21 as required. There is no indication that the parent company's financials are required but have been withheld, so the disclosures appear to be compliant in this regard.

Potential Mitigations

• Your attorney can confirm that all required entities and their financials have been properly disclosed according to franchise law.
• An accountant should review the provided financials to assess the stability of the disclosed franchisor entity.
• Clarifying the specific support obligations of the parent company versus the franchisor entity is a task for your attorney.

Explanation

This risk was not identified in the FDD package. Item 1 of the FDD does not disclose any predecessors from which Escape Enterprises, Ltd. acquired the franchise system or its assets. Therefore, risks associated with a negative or undisclosed history from a prior owner of the system do not appear to be present based on the information provided.

Potential Mitigations

• Your attorney can help confirm the corporate history as disclosed in Item 1 of the FDD.
• A business advisor can assist with broader due diligence on the brand's history in the marketplace.
• Speaking with long-tenured franchisees can provide anecdotal history of the system's evolution.

Explanation

This risk was not identified in the FDD package. Item 3 discloses only one lawsuit initiated by the franchisor against a franchisee to collect royalty payments. While any litigation is noteworthy, a single collections case does not constitute a pattern of litigation suggesting systemic problems, fraud, or an overly aggressive legal strategy. You should, however, remain aware of any future litigation disclosed in subsequent FDDs.

Potential Mitigations

• An attorney can review the details of the disclosed litigation to understand its implications.
• Conducting independent online searches for news articles or other public records regarding the franchisor could reveal other disputes.
• It is wise to ask current and former franchisees about their experiences with disputes and the franchisor's legal department.