Explanation

This risk was not identified. The franchisor's predecessor began franchising in 2005 and the current system has over 150 operating units, indicating it is an established brand rather than a new or unproven one. However, in any new system, you would face risks from unrefined operations, untested markets, and minimal brand recognition, which could hinder your ability to build a customer base and achieve profitability, making due diligence on the concept's viability essential.

Potential Mitigations

• For any franchise, especially a newer one, consulting with a business advisor to research the brand's market position and growth potential is crucial.
• An accountant should be engaged to create conservative financial projections, as unproven systems lack reliable performance data.
• Your attorney should review the franchisor's stated support commitments to ensure they are adequate for a new market entrant.

Explanation

This risk was not identified in the FDD package. The business model, which is centered on Japanese-style teriyaki dishes, operates in the well-established fast-casual restaurant sector. This is not a concept based on a recent or fleeting trend. A fad business model presents a significant risk because customer interest may disappear, leaving you with a long-term contractual obligation for a business with a collapsed market, jeopardizing your entire investment.

Potential Mitigations

• It is always wise to have a business advisor help you conduct independent market research to confirm long-term consumer demand for any franchise concept.
• Your accountant can assist in evaluating the business model's resilience to economic shifts and changing consumer tastes.
• Your attorney should review the franchise agreement for exit strategies in case the market for the product or service declines unexpectedly.

Explanation

This risk was not identified. Item 2 of the FDD shows a management team with significant and long-term experience with the Teriyaki Madness brand and in the franchise industry generally. Inexperienced management is a major risk because it can lead to poor strategic decisions, weak operational systems, and inadequate franchisee support, directly impacting your potential for success even if you operate your business perfectly.

Potential Mitigations

• Even with an experienced team, it is valuable to have your business advisor research the recent performance of the leadership and the brand under their direction.
• You should ask current franchisees about their direct experiences with the management team's competence and support.
• An attorney can help investigate if there has been any recent, undisclosed turnover in key management positions.

Explanation

This risk was not identified in the FDD package, as there is no disclosure in Item 1 of the franchisor being owned by a private equity firm. When a PE firm owns a franchisor, there is a risk that decisions may prioritize short-term investor returns over the long-term health of the brand and its franchisees. This can sometimes lead to reduced support, increased fees, or a quick sale of the system, creating uncertainty for your investment.

Potential Mitigations

• It is still prudent to have your attorney investigate the franchisor's ownership structure to confirm the absence of undisclosed controlling entities.
• A business advisor can help you research the franchisor's history to see if there have been past ownership changes that affected the system.
• You should always ask current franchisees about their perception of the ownership's commitment to the brand's long-term success.

Explanation

This risk was not identified. The FDD's Item 1 appears to provide a clear history of the franchisor's predecessors and the acquisition timeline. A failure to disclose or downplaying the negative history of a predecessor, such as past litigation, bankruptcy, or high franchisee failure rates, can hide systemic problems that may still affect the brand, which is a risk you would want to assess before investing.

Potential Mitigations

• A business advisor can help you conduct independent research, such as news archive searches, for information about any named predecessors.
• It is good practice to ask long-tenured franchisees about their experience under any previous ownership or predecessor entity.
• Your attorney should verify that the predecessor information in Items 1, 3, and 4 appears consistent and complete.