Explanation

This risk was not identified. The audited financial statements for Rise & Dine Restaurants, Inc. (RDRI) show a financially stable company. For 2024, it reported positive and growing net worth, positive net income, and a healthy current ratio. The auditor's report is unqualified and contains no 'going concern' warning, which indicates a strong financial position to support the franchise system. An accountant's review of these statements is still a crucial step.

Potential Mitigations

• Even with positive financials, a thorough review of the complete, audited financial statements and all footnotes with your accountant is essential.
• Discuss the franchisor's financial management, debt, and capitalization strategies with your financial advisor to understand their long-term stability.
• Your attorney should verify that the financial statements provided comply with all disclosure requirements.

Explanation

This risk was not identified. The data in Item 20 shows a very stable franchise system over the past three years. There were zero terminations, zero non-renewals, and zero cessations of operation for other reasons reported among the 12 franchised outlets. This extremely low turnover is a positive indicator of system health and franchisee satisfaction.

Potential Mitigations

• Although turnover is low, contacting a diverse group of current franchisees listed in Item 20 is a valuable way to gather firsthand information about the business.
• A business advisor can help you formulate questions for current franchisees to understand their satisfaction levels and profitability.
• An accountant can help you analyze the Item 20 data in conjunction with the Item 19 financial performance data for a more complete picture.

Explanation

This risk was not identified. According to Item 20, the franchise system's size has remained stable at 22 total outlets for the last three years. Projections for the next fiscal year show modest, controlled growth of only two new franchised units. This indicates the franchisor is not expanding at a rate that might strain its ability to provide support services to new and existing franchisees.

Potential Mitigations

• A business advisor can help you evaluate whether the franchisor's support infrastructure is appropriate for its current size and planned growth.
• Discuss the franchisor’s growth strategy and how they plan to scale support with your business advisor.
• Ask current franchisees about their perception of the quality and responsiveness of franchisor support.

Explanation

This risk was not identified. Item 1 shows that RDRI was formed in 2008 and has been franchising for over 15 years. Item 20 indicates a stable base of 22 restaurants. This is an established brand with a significant operating history, not a new or unproven system. A long track record provides more data for you to evaluate the business model's viability.

Potential Mitigations

• Even with a proven system, it is prudent to have a business advisor help you research the brand's current market position and competitive landscape.
• Your attorney should still review the entire FDD package for any risks, regardless of the system's age.
• Contacting franchisees who have been with the system for many years can provide valuable long-term perspective.

Explanation

This risk was not identified. The business concept described in Item 1 is a traditional breakfast, brunch, and lunch cafe. This is a well-established segment of the restaurant industry with enduring customer demand, not a business based on a short-term trend or fad. This suggests a more stable, long-term market potential.

Potential Mitigations

• A business advisor can help you analyze the long-term outlook for the casual dining restaurant sector in your specific market.
• It is still important to develop a business plan with your accountant that considers how the business will adapt to evolving consumer tastes.
• Researching local competitors with your business advisor is key to understanding the viability of any restaurant concept.

Explanation

This risk was not identified. Item 2 shows that the executive team has extensive and long-term experience with RDRI and within the restaurant industry. For example, the Chairman founded the company in 2008 and the CEO has been with the company since 2010. This level of experience in both franchising and the specific business concept is a positive factor for providing effective leadership and support.

Potential Mitigations

• Engaging a business advisor to review the management team's background can provide an objective third-party perspective.
• When speaking with current franchisees, it is useful to ask about their direct experiences and interactions with the management team.
• Your attorney can help you understand the roles and responsibilities of the key executives as described in the FDD.

Explanation

This risk was not identified in the FDD. Item 1 and Item 2 describe a franchisor that appears to be founder-led and privately held, with no mention of ownership by a private equity firm. The risks associated with short-term profit motives that can sometimes accompany private equity ownership do not appear to be present here.

Potential Mitigations

• It is still wise to have your attorney confirm the ownership structure of the franchisor during your due diligence.
• A business advisor can help you research the company's history to ensure there are no undisclosed controlling entities.
• Ask the franchisor about their long-term vision for the company to gauge their commitment to the brand's health over quick profits.

Explanation

This risk was not identified. Item 1 clearly identifies Rise & Dine Restaurants, Inc. as the franchisor and discloses its affiliates. There is no mention of a parent company. The financial statements in Item 21 are for RDRI itself and do not indicate reliance on a parent company for financial stability or guarantees. All necessary disclosures appear to be present.

Potential Mitigations

• Your attorney should review Item 1 and any related corporate documents to confirm the franchisor's structure.
• Your accountant can confirm that the provided financial statements are for the correct legal entity offering the franchise.
• When speaking with the franchisor, you can seek to confirm that there are no other entities that control or guarantee the franchisor's obligations.

Explanation

This risk was not identified. In Item 1, the franchisor states that it has not had any predecessors in the past 10 years. This indicates continuity in the brand's management and operations under the current entity, which simplifies due diligence as there is no hidden history of past failures or issues under a different company name to investigate.

Potential Mitigations

• Your attorney should review the corporate history described in Item 1 to ensure the statements about predecessors are clear.
• A business advisor can help you conduct a broader public records search on the company and its principals to verify this history.
• Speaking with long-term franchisees can provide additional comfort regarding the company's operational history.

Explanation

This risk was not identified. Item 3 of the FDD explicitly states that no litigation is required to be disclosed. Item 4 similarly states that no bankruptcy information is required to be disclosed for the franchisor, its predecessors, or its management. A clean legal history is a positive indicator and suggests a lower likelihood of systemic disputes with franchisees.

Potential Mitigations

• Your attorney can perform independent public records searches to verify the litigation and bankruptcy history of the franchisor and its key principals.
• It is still a good practice to ask current franchisees about any disputes they are aware of within the system, even if not disclosed.
• Understanding the dispute resolution clauses in the Franchise Agreement with your attorney remains important, regardless of the franchisor's litigation history.