Explanation

This specific risk was not identified in the FDD Package. Item 20 data shows the US system is brand new, with only one franchise opened in 2024 and no terminations, non-renewals, or other cessations to date. High franchisee turnover is a critical red flag in established systems, often indicating problems with profitability, support, or the business model itself. You should monitor future FDDs for this data as the system grows.

Potential Mitigations

• As the system matures, an accountant can help you analyze future Item 20 tables to calculate the annual turnover rate.
• If turnover appears high in the future, your attorney can help you frame questions to ask former franchisees about their reasons for leaving.
• A business advisor can help you compare future turnover rates against industry averages to gauge system health.

Explanation

This risk was not identified in the FDD Package. The system is new and growing from a base of zero, so there is no indication of excessively rapid growth outpacing support capabilities at this time. However, this is a risk to monitor. Rapid growth can strain a franchisor's resources, potentially leading to inadequate site selection assistance, training, and ongoing support for all franchisees if not managed carefully.

Potential Mitigations

• Your business advisor can help you evaluate the franchisor's plans for scaling its support infrastructure as the system expands.
• When speaking with the first few franchisees, it is wise to inquire about the quality and timeliness of the support they are currently receiving.
• An accountant can review future financial statements to determine if the franchisor is investing adequately in support staff and systems to match growth.

Explanation

This specific risk was not identified in the FDD Package, as there is no disclosure in Item 1 indicating ownership by a private equity firm. This type of ownership can be a concern because PE firms often have specific investment timelines and return expectations that may prioritize short-term financial results over the long-term health of the franchise system. Future changes in ownership are always a possibility in any system.

Potential Mitigations

• Your attorney can help you understand the 'Assignment by Franchisor' clause to know your rights if the system is sold in the future.
• Periodically researching the franchisor's ownership structure can be a good practice, which a business advisor can assist with.
• It is prudent to foster good relationships with other franchisees to share information about any potential changes in ownership.

Explanation

This risk was not identified in the FDD package. Item 1 states clearly, 'We do not have any predecessors required to be disclosed in this Disclosure Document.' In franchising, a predecessor is a company from which the current franchisor acquired the business. Understanding predecessor history is important as it can reveal past issues like litigation or franchisee failures that might still affect the system's health and reputation.

Potential Mitigations

• Confirmation that there are no predecessors simplifies due diligence, but your attorney should still verify the franchisor's corporate history.
• A business advisor can help you research the background of the key executives listed in Item 2 to understand their prior business track records.
• It is still valuable to ask the first franchisees about their perception of the brand's history and the founders' experience.

Explanation

This specific risk was not identified in the FDD package. Item 3 states that no litigation is required to be disclosed. A clean litigation history is a positive indicator. However, as a very new franchisor in the US, the absence of litigation is expected. In any franchise system, it is important to monitor this item in future FDDs, as a pattern of lawsuits, especially those initiated by franchisees alleging fraud or misrepresentation, can be a serious red flag.

Potential Mitigations

• An attorney can perform an independent public records search to confirm the accuracy of the Item 3 disclosure.
• It is a good practice to ask current franchisees about any disputes they are aware of, even if not yet formal litigation.
• When reviewing future FDDs, have your attorney pay close attention to any new lawsuits and their underlying claims.