TacoTime
Initial Investment Range
$155,650 to $824,300
Franchise Fee
$16,500 to $61,000
As a franchisee, you will operate a restaurant called TacoTime, preparing and serving specialized freshly prepared Mexican fast food and related menu items.
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TacoTime March 28, 2025 FDD Risk Analysis
Free FDD Library AI Analysis Date: July 16, 2025
DISCLAIMER: Not Legal Advice - For Informational Purposes Only. Consult With Qualified Franchise Professionals.
Franchisor Stability Risks
Start HereDisclosure of Franchisor's Financial Instability
High Risk
Explanation
The financial statements for the guarantor, MTY Franchising USA, Inc., show a net loss of over $12.5 million for the fiscal year ended November 30, 2024, a significant decline from a net income of nearly $17 million in the prior year. While the company has substantial assets, a swing from profitability to a significant loss could indicate potential financial headwinds that may impact the franchisor's ability to support the system and invest in the brand's growth.
Potential Mitigations
- A thorough review of the guarantor's complete audited financial statements, including all footnotes, with your accountant is essential to assess its financial stability.
- Discuss with current franchisees whether they have observed any changes in the level or quality of support provided by the franchisor.
- Your attorney should verify if any financial performance bonds are required by state regulators due to the recent financial performance.
High Franchisee Turnover
High Risk
Explanation
Item 20 data indicates a consistent net loss of franchised outlets in the United States over the past three years, shrinking from 108 to 97 units. The system is not growing, and units are regularly ceasing operations, not renewing, or being reacquired by the franchisor. This trend could suggest potential issues with franchisee profitability or satisfaction within the system, posing a significant risk to the long-term viability and brand value of your potential investment.
Potential Mitigations
- It is crucial to contact a significant number of current and former franchisees listed in Item 20 to understand the reasons for the system's contraction.
- Your accountant should analyze the three-year trend in terminations, non-renewals, and other cessations to assess the overall health of the franchise system.
- Inquire with the franchisor about their specific plans to address this negative growth trend and improve franchisee retention.
Rapid System Growth
Low Risk
Explanation
This risk was not identified in the FDD package. Item 20 data indicates the system has been shrinking, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support, training, and quality control to all franchisees. A system expanding faster than its support infrastructure can lead to operational challenges for new and existing franchisees alike.
Potential Mitigations
- A business advisor can help you evaluate whether a franchisor's support infrastructure is adequate for its current size and any future growth plans.
- When analyzing any franchise, your accountant should review the franchisor's financial statements to ensure they are investing in support systems, not just sales.
- It's wise to ask existing franchisees about the quality and timeliness of the support they receive from the franchisor.
New/Unproven Franchise System
Low Risk
Explanation
This specific risk was not identified. The FDD indicates that the TacoTime brand has a long operational history, with predecessors dating back to 1960. Unproven systems carry higher risks, as their business model, brand recognition, and support structures may be underdeveloped. A lack of a track record makes it difficult to assess the potential for success and long-term viability.
Potential Mitigations
- For any new system, your business advisor should help you perform extra due diligence on the prior industry experience of the management team.
- When evaluating an unproven franchise, it is critical to determine if the franchisor has sufficient capital to support the system through its early stages by having your accountant review the financials.
- Consulting an attorney is important to negotiate more franchisee-favorable terms to offset the higher risk of joining an unproven system.
Possible Fad Business
Low Risk
Explanation
This risk is not present in the FDD package. TacoTime is a long-established concept in the Mexican fast-food sector, which is not considered a fad. Investing in a business based on a short-term trend is risky, as consumer interest may decline, leaving you with a long-term contract for a business with diminished demand. A sustainable business model should demonstrate long-term consumer appeal.
Potential Mitigations
- A business advisor can help you research the long-term market trends for any industry you consider entering.
- It is wise to assess a franchisor's plans for product innovation and adaptation to ensure the brand can remain relevant over time.
- An accountant can help you model the financial risks associated with a business that has highly cyclical or trend-dependent revenue streams.
Inexperienced Management
Low Risk
Explanation
This risk was not identified. Item 2 discloses the franchisor's executive team, which appears to have considerable experience in both the restaurant industry and franchising. A management team lacking specific experience in franchising or in the brand's industry can be a significant risk, as they may not have the expertise to provide effective support, manage system growth, or make sound strategic decisions.
Potential Mitigations
- Always have your business advisor help you research the backgrounds and specific franchising experience of the key executives listed in Item 2.
- It is prudent to ask current franchisees about their opinion of the management team's competence and the quality of support they provide.
- Your attorney can help you investigate if there has been recent, high turnover in the franchisor's executive leadership.
Private Equity Ownership
Medium Risk
Explanation
The franchisor is part of MTY Food Group, a very large, publicly-traded holding company that operates dozens of different restaurant brands. This structure can create risks, such as resource allocation conflicts between brands and a focus on short-term shareholder returns over the long-term health of any single system. The FDD discloses that MTY operates several other brands that directly compete with TacoTime, such as Mucho Burrito and Baja Fresh.
Potential Mitigations
- A business advisor can help you investigate the parent company's reputation and track record in managing its other franchise brands.
- It is important to ask current TacoTime franchisees if they feel they receive adequate support and resources compared to other brands in the portfolio.
- Your attorney should review the assignment clause in the franchise agreement to understand the implications if the brand is sold to another entity.
Non-Disclosure of Parent Company
Low Risk
Explanation
This risk was not identified, as Item 1 and Item 21 of the FDD clearly disclose the parent and guarantor structure. If a franchisor is a subsidiary of another company, the parent's financial health can be critical. Failure to disclose a parent company or provide its financial statements when required can hide the true financial condition and stability of the entity ultimately controlling the franchise system.
Potential Mitigations
- Your attorney should always verify the corporate structure disclosed in Item 1 to identify any parent or affiliate companies.
- If a parent company guarantees the franchisor's performance, your accountant must review the parent's financial statements.
- Understanding the full corporate structure is vital for assessing who ultimately controls the brand and its resources; a business advisor can assist with this analysis.
Predecessor History Issues
Medium Risk
Explanation
Item 1 discloses a complex history with predecessor entities, including Taco Time International, Inc. and Kahala Franchise Corp. The litigation history detailed in Item 3 includes cases involving these predecessors. A complicated history of acquisitions and corporate changes can sometimes obscure past systemic problems or create inherited liabilities that could affect the current franchise system. The large number of affiliated brands adds to this complexity.
Potential Mitigations
- It's wise to discuss the franchisor's predecessor history and any associated litigation with your attorney.
- Talking to long-term franchisees who have experience under previous ownership can provide valuable insight.
- Your accountant can help assess if any financial issues appear to be carried over from predecessor entities by reviewing multi-year financial statements.
Pattern of Litigation
High Risk
Explanation
Item 3 discloses a significant amount of litigation involving the franchisor and its many affiliated brands. Several concluded cases involved franchisee-plaintiffs alleging fraud, misrepresentation, or violations of franchise law, some resulting in substantial settlements paid by the franchisor's affiliates. This pattern of litigation may indicate systemic issues in the franchise sales process or franchisee relations across the parent company's brand portfolio, which could pose a risk to new franchisees.
Potential Mitigations
- Your attorney must carefully review every piece of litigation disclosed in Item 3 to understand the nature and pattern of the claims.
- Consider the frequency of franchisee-initiated lawsuits alleging fraud or misrepresentation as a significant red flag in your overall assessment.
- Discussing the litigation history with current and former franchisees may provide context beyond the FDD's summary.
Disclosure & Representation Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Financial & Fee Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Legal & Contract Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Territory & Competition Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
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Regulatory & Compliance Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Franchisor Support Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
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Operational Control Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Term & Exit Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
Miscellaneous Risks
Example Risk: Franchisee Financial Obligations
Blue Risk
Explanation
This risk involves the financial obligations that a franchisee must meet, including initial fees, ongoing royalties, and other required payments. Understanding these obligations is crucial for long-term success.
Potential Mitigations
- Carefully review the Franchise Disclosure Document (FDD) and consult with a franchise attorney to fully understand all financial commitments before signing.
- Conduct regular risk assessments
- Implement monitoring and reporting systems
Unlock Full Risk Analysis
Purchase the complete risk review to see all 102 risks across all 10 categories.
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