Explanation

This risk was not identified. The FDD shows the system has been shrinking, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support. While not a risk here, you should always evaluate if a franchisor's support infrastructure is keeping pace with its growth, as this directly impacts the quality of assistance you receive after paying your fees.

Potential Mitigations

• Engaging a business advisor to assess a franchisor's support systems in relation to its size and growth rate is a valuable step.
• It's prudent to ask current franchisees about the quality and timeliness of support with any franchise you consider.
• Your accountant can review a franchisor's financials to see if they are reinvesting in support infrastructure.

Explanation

This risk was not identified, as McColla has been franchising since 1995. For new franchise systems, there is an increased risk due to unproven business models and a lack of support history. Prospective franchisees should exercise extra caution with emerging brands, carefully examining the founders' experience and the system's initial capitalization, as these factors are crucial for early-stage success and stability.

Potential Mitigations

• When evaluating a newer system, a thorough review of the management team's industry and franchising experience with a business advisor is crucial.
• Your attorney can advise on negotiating more favorable terms to offset the higher risks associated with an unproven brand.
• Speaking with the very first franchisees of a new system provides invaluable insight into the franchisor's capabilities and support.

Explanation

The convenience store concept is a long-established industry and does not appear to be a fad. When considering any franchise, it is important to assess whether the core product or service has long-term consumer demand. Investing in a trend-based business carries the risk that your market could disappear, leaving you with ongoing contractual obligations but a non-viable business model.

Potential Mitigations

• A business advisor can help you conduct market research to distinguish between a sustainable business model and a short-term trend.
• Evaluating a franchisor's plans for product innovation and adaptation is key to understanding its long-term vision.
• Your financial advisor can help assess a concept's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD. When a franchise is owned by a private equity firm, there can be a risk that short-term financial goals are prioritized over the long-term health of franchisees. Prospective franchisees considering a PE-backed brand should research the firm's history with other franchise systems and understand their typical investment timeline and exit strategy.

Potential Mitigations

• A business advisor can help research a private equity owner's reputation and track record in the franchise industry.
• Interviewing franchisees who have been with a system before and after a PE acquisition can provide valuable perspective.
• Your attorney should review the Franchise Agreement for terms related to assignment or sale of the franchise system.

Explanation

This risk was not identified, as McColla discloses it does not have a parent company. In cases where a franchisor is a subsidiary of a larger entity, it is important that the parent's financial information is also disclosed if the parent guarantees the franchisor's performance or is otherwise fundamental to the offering. Without it, you may not have a complete picture of the financial backing of the system.

Potential Mitigations

• Your attorney can help verify a company's corporate structure to ensure there are no undisclosed parent or controlling entities.
• If a parent company exists and provides guarantees, your accountant should insist on reviewing their audited financial statements.
• Understanding the full corporate structure is a key piece of due diligence a business advisor can assist with.

Explanation

This risk was not identified, as the FDD does not disclose any predecessors. If a franchisor has acquired its system from a predecessor, it's crucial to examine that predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover. A lack of transparency about a predecessor's track record can obscure inherited problems that may continue to affect the system under new ownership.

Potential Mitigations

• Your attorney should carefully review Item 1 of the FDD for any mention of predecessors and their history.
• If a predecessor exists, conducting independent research into their business record is a wise step for a business advisor.
• Speaking with long-term franchisees who operated under a predecessor can provide invaluable, firsthand insight.