Explanation

This risk was not identified. The FDD does not indicate rapid system growth; in fact, outlet numbers suggest a period of contraction and instability. Rapid growth can be a risk because it can strain a franchisor's ability to provide support, but that does not appear to be the primary issue here.

Potential Mitigations

• A business advisor can help you assess whether a franchisor has adequate infrastructure to support its current and projected number of franchisees.
• Having your accountant review the franchisor's financials is important to determine if they are investing in support systems commensurate with growth.
• Legal counsel should review the franchisor's support obligations outlined in the agreement.

Explanation

This specific risk was not identified in the FDD package. Sub Zero has been offering franchises since 2010, with predecessor activity since 2006, so it is not a new or unproven system. The risks associated with unproven models, such as lack of brand recognition or undeveloped support systems, are therefore less applicable here.

Potential Mitigations

• For any new franchise system, it is vital to have a business advisor help you conduct extensive due diligence on the concept's viability.
• Your accountant should scrutinize the financials of a new franchisor to ensure it is adequately capitalized for the challenging early years.
• Consulting an attorney is important to negotiate more franchisee-favorable terms to offset the higher risk of an unproven brand.

Explanation

This risk is not identified in the FDD. The key management personnel, as described in Item 2, appear to have over a decade of direct experience operating and franchising this specific "Sub Zero" concept. This suggests the leadership team is not new to the business or the franchise system, which is a positive factor.

Potential Mitigations

• It is always wise to have a business advisor help you vet the backgrounds of a franchisor's key management team, focusing on their industry and franchising experience.
• Speaking with current franchisees about their perception of management's competence and strategic direction is a crucial due diligence step.
• Your attorney can help you research any past business dealings or litigation involving the management team.

Explanation

This risk was not identified. The FDD does not indicate that the franchisor is owned or controlled by a private equity firm. The risks often associated with PE ownership, such as a focus on short-term returns over long-term system health, do not appear to be present based on the ownership structure described in Item 1.

Potential Mitigations

• When a franchisor is owned by a private equity firm, a business advisor can help research the firm's reputation and track record with other brands.
• It is important to ask existing franchisees about any changes in support or culture since a PE acquisition.
• An attorney should review the assignment clause in the Franchise Agreement to understand how easily the system can be sold.

Explanation

This risk was not identified in the FDD. Item 1 appears to provide a clear description of the franchisor entity and its relevant affiliates and predecessors. There is no indication of a controlling parent company whose financials or identity are being withheld, which aligns with standard disclosure practices.

Potential Mitigations

• Your attorney can help verify the franchisor's corporate structure and identify any undisclosed parent or controlling entities.
• If a franchisor is a thinly capitalized subsidiary, it is critical for an accountant to review the parent company's financials for stability.
• Understanding any guarantees provided by a parent company requires careful review by legal counsel.

Explanation

The franchisor discloses a complex history involving a predecessor and a former affiliate that previously offered franchises. While no specific negative legal or bankruptcy history for these predecessors is disclosed in Items 3 and 4, such a convoluted corporate past can sometimes indicate historical instability. You should be aware of this complex background when evaluating the system's overall history.

Potential Mitigations

• A franchise attorney should carefully review the disclosed history of any predecessor entities for potential red flags.
• Consider asking long-tenured franchisees about their experience during any transition from a predecessor company.
• A business advisor can help investigate the public reputation or any news articles related to the predecessor entities.

Explanation

This risk was not identified. Item 3 of the FDD explicitly states that there is no litigation required to be disclosed. This is a positive indicator, as a pattern of lawsuits, particularly those initiated by franchisees alleging fraud or misrepresentation, can be a major red flag about a franchise system's health and integrity.

Potential Mitigations

• Even if no litigation is disclosed, an attorney can conduct independent public record searches for lawsuits involving the franchisor or its principals.
• A business advisor can help you understand the context and severity of any litigation that is disclosed in an FDD.
• It's crucial to discuss any disclosed litigation with current and former franchisees to get their perspective.