Explanation

This risk was not identified, as Sunpark USA is a new franchisor in the United States with no operating or previously operating franchised outlets as of the FDD's date. High franchisee turnover is a critical red flag in established systems, often indicating widespread franchisee dissatisfaction or lack of profitability. Without a history, this specific risk cannot be evaluated, but the lack of an established franchisee network presents its own challenges.

Potential Mitigations

• It is crucial to monitor the progress of the first cohort of franchisees as they open and operate.
• A business advisor can help you assess the risks associated with being one of the first franchisees in a new system.
• An attorney should review the FDD for any information about the parent company's franchise history in other countries.

Explanation

This risk was not identified in the FDD package. The franchisor is a new entrant to the U.S. market with no operational franchise units, so rapid growth is not a current concern. In other franchise systems, rapid expansion can strain a franchisor's ability to provide adequate support. While not a present risk, you should monitor the franchisor's future growth plans to ensure their support infrastructure keeps pace.

Potential Mitigations

• Engaging a business advisor can help you evaluate the franchisor's strategic plan for growth and support.
• Your accountant can assess whether the franchisor's financial resources, as shown in Item 21, are sufficient to support future expansion.
• Speaking with the first few franchisees as they open will provide insight into the quality of initial support.

Explanation

This risk was not identified. The franchise concept is centered on established food categories like Japanese-style dishes, coffee, and ramen, which have a long history of consumer demand. Investing in a fad business can be risky as its popularity may decline, but this concept appears to be grounded in a durable market sector. The parent company also has a long operating history in Japan, suggesting sustainability.

Potential Mitigations

• Consulting a business advisor with restaurant industry expertise can help you assess the long-term market trends for this type of cuisine in your specific area.
• Your own market research into local competition and consumer preferences is essential for verifying demand.
• An accountant can help you model the financial viability of the concept based on these established market factors.

Explanation

This risk was not identified in the FDD package. Sunpark USA is a subsidiary of a Japanese corporation, and there is no indication in Item 1 or Item 2 that the franchisor or its parent is owned or controlled by a private equity firm. Therefore, the specific risks associated with PE ownership, such as a focus on short-term returns over long-term brand health, do not appear to be present.

Potential Mitigations

• Your attorney should verify the corporate ownership structure to confirm the absence of private equity involvement.
• It's still valuable for a business advisor to research the parent company's reputation and long-term strategy.
• An accountant can help analyze the parent company's financial health if those statements were available.

Explanation

This risk is not present, as the franchisor explicitly states in Item 1 that it has no predecessors. In other situations, a franchisor might acquire a struggling system, and the predecessor's history could contain important information about past litigation, bankruptcies, or high franchisee turnover. Here, you are evaluating a new U.S. entity without a disclosed predecessor history.

Potential Mitigations

• Your attorney should confirm through corporate records that there are no undisclosed predecessor entities.
• A business advisor can help you research the history of the parent company's brands in other countries for context.
• In the absence of predecessor data, focus due diligence on the franchisor's own limited history and management experience.

Explanation

This risk was not identified in the FDD. Item 3, which requires the disclosure of material litigation, and Item 4, for bankruptcies, both state that there are no such events to report for the franchisor or its management. A clean litigation and bankruptcy history is a positive sign, although it is expected for a company with such a short operating history in the U.S.

Potential Mitigations

• Although no litigation is disclosed, your attorney can conduct a public records search to verify this information.
• It is good practice to ask current and former franchisees (once they exist) about any disputes, even those not rising to the level of litigation.
• Your accountant can assess other risk areas, like financial stability, which might lead to future disputes.