Explanation

This risk was not identified. The FDD does not indicate rapid system growth that might strain the franchisor's support capabilities. Slow, controlled growth is generally less risky than explosive expansion. However, a prospective franchisee should still evaluate whether a franchisor has adequate resources and personnel to support both its existing franchisees and any future growth plans, which helps maintain brand standards and franchisee satisfaction.

Potential Mitigations

• Engage your business advisor to evaluate the franchisor's staffing and infrastructure in relation to its current size and stated growth plans.
• Your accountant can review the financial statements to determine if the franchisor is allocating sufficient capital to support functions.
• Speaking with both new and established franchisees can provide your attorney with insights into the current quality of support.

Explanation

This risk was not identified, as the FDD indicates the franchisor has been operating and franchising for over two decades. A long history can suggest a more established brand and refined operating systems. However, longevity does not eliminate all risks. A prospective franchisee should still thoroughly investigate the current health and relevance of the brand in today's market, as well as the franchisor's recent performance.

Potential Mitigations

• Your business advisor can help research the brand's current market position and competitive landscape.
• Asking your attorney to review recent litigation and franchisee turnover can provide insights into the system's current health.
• An accountant should still scrutinize recent financial statements, as even established systems can face new financial challenges.

Explanation

This risk is not present. The franchised business is a gourmet coffee and tea café, which is a concept within a well-established and long-standing industry, not a business model based on a fleeting trend. The long-term consumer demand for coffee and café experiences suggests a lower risk of the business becoming obsolete due to changing fads. This stability can be a positive factor for long-term investment.

Potential Mitigations

• A business advisor can help you analyze long-term consumer trends within the coffee and café industry.
• Your accountant can assist in evaluating the financial stability of business models that are not trend-dependent.
• Reviewing the franchisor's history of innovation with your attorney can provide insight into its ability to adapt over time.

Explanation

This risk was not identified. Item 2 of the FDD shows that the key executives have extensive and long-term experience with the Sweetwaters brand, with the founders having been involved since 1992. This level of direct, long-term experience in both the specific business and in managing the franchise system is a positive indicator. Experienced leadership can provide more stable and knowledgeable support for franchisees.

Potential Mitigations

• Your business advisor can help you assess how the executive team's experience aligns with the company's strategic direction.
• During due diligence calls, you can ask existing franchisees about their confidence in the management team's leadership.
• It is still prudent to have your attorney review the employment history of key personnel for any potential concerns.

Explanation

This risk was not identified in the FDD. Item 1 indicates the company has no parent and is not owned by a private equity firm; the original founders appear to still be in control. This can be a positive sign, suggesting that decisions are more likely to be focused on the long-term health of the brand rather than short-term investor returns, which can be a concern with private equity ownership.

Potential Mitigations

• Your attorney can verify the corporate ownership structure to confirm the absence of private equity or other institutional control.
• A business advisor can help you understand the different strategic priorities between founder-led and PE-owned companies.
• Discussing the long-term vision for the company with the franchisor can provide insight into their commitment to the brand.

Explanation

This risk was not identified. The FDD states in Item 1 that there is no parent company. The franchisor entity, Sweetwaters, appears to be the primary operating company. In cases where a franchisor is a subsidiary of a larger parent, the parent's financial stability can be a critical factor, and its financials may be required. The absence of a parent company structure simplifies the due diligence process in this regard.

Potential Mitigations

• Your attorney should confirm the franchisor's corporate structure and the absence of any undisclosed parent or controlling entities.
• In any franchise review, it's wise for an accountant to assess the self-sufficiency of the franchisor entity presented.
• A business advisor can help you understand the implications of different corporate structures on franchisor support and stability.

Explanation

This risk was not identified. Item 1 of the FDD states that the franchisor has no predecessors. The document indicates that the business was started and developed by the current leadership. This provides a clear and consistent operational history, which can make it easier to assess the franchisor's track record without having to investigate the performance and potential liabilities of prior corporate entities.

Potential Mitigations

• Your attorney can confirm the corporate history to ensure no predecessor entities have been overlooked.
• A business advisor can help evaluate the benefits of a consistent management and ownership history.
• Speaking with long-term franchisees can provide additional confirmation of the company's historical narrative.

Explanation

This risk was not identified. Item 3 of the FDD states that there is no litigation information required to be disclosed. This suggests the absence of recent, material legal actions involving the franchisor related to fraud, securities violations, or franchise relationship law. A clean litigation history is a positive indicator, though it does not guarantee future disputes will not arise.

Potential Mitigations

• Your attorney can conduct an independent public records search to confirm the absence of significant litigation.
• It is always a good practice to ask current franchisees about the general state of relations within the franchise system.
• Understanding the dispute resolution clauses in the franchise agreement is a key preventative measure your attorney should undertake.