Explanation

The franchisor’s 2023 audited financial statements show profitability, positive cash flow, and positive members' equity. While prior year income was lower, the most recent financials do not indicate instability. However, a significant risk regarding the franchisor's lack of key insurance policies is addressed separately under Miscellaneous Risks.

Potential Mitigations

• Engaging an accountant to perform a multi-year trend analysis of the franchisor's financial statements is a crucial step.
• Your attorney should review any financial assurance mechanisms like bonds or escrow if required by your state.
• Discuss the franchisor's financial health and capitalization strategy with your financial advisor to understand their long-term stability.

Explanation

This risk was not identified in the FDD package. Item 20 data for the last three years shows steady franchise growth from zero to three units with no terminations, non-renewals, or other cessations. A low franchisee turnover rate is generally a positive indicator of system health and franchisee satisfaction.

Potential Mitigations

• It is still valuable to have your attorney help you formulate questions for current franchisees about their satisfaction with the system.
• A business advisor can help you monitor industry trends to see if the system's low turnover rate remains consistent over time.
• Confirm with your accountant that the definitions used in Item 20 for transfers and cessations are clear and not misleading.

Explanation

This risk was not identified in the FDD. The system has grown from zero to three franchised outlets over a three-year period. This slow and deliberate growth rate does not suggest that the franchisor's resources are being stretched too thin, which can be a risk in systems that expand very quickly.

Potential Mitigations

• A discussion with your business advisor can help evaluate if the franchisor's support infrastructure is scalable for future growth.
• Ask current franchisees if they feel the level of support has remained consistent as the system has grown.
• Your accountant can review the franchisor's investment in support staff and systems relative to their growth plans.

Explanation

This risk was not identified. While the branding uses terms like 'funky' and 'crazy toppings,' the core business is centered on bagels and sandwiches, which are staple food items with long-standing consumer demand. The business model does not appear to be based on a short-lived trend or fad.

Potential Mitigations

• It is wise to have a business advisor help you research the long-term consumer demand for this style of quick-service restaurant in your local market.
• In discussions with the franchisor, inquire about their plans for menu innovation and adapting to future food trends.
• Your financial advisor can help assess the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is a limited liability company and the management listed in Item 2 suggests it is a family-run business. There is no mention of ownership or control by a private equity firm, which can sometimes introduce risks related to short-term profit motives over long-term system health.

Potential Mitigations

• Your attorney can verify the company's ownership structure through public records to confirm the absence of undisclosed controlling parties.
• It is good practice to ask the franchisor about any potential plans to sell the company in the near future.
• A business advisor can help you understand the typical operational differences between founder-led and private equity-owned franchise systems.

Explanation

This risk was not identified. The FDD discloses that TBNF LLC is the franchisor and an affiliate, THE BAGEL NOOK, LLC, owns the trademarks and operates a corporate store. This structure is clearly disclosed in Item 1. There is no indication of an undisclosed parent company whose financial health might be critical to understanding the system's overall stability.

Potential Mitigations

• Your attorney can confirm the relationship between the franchising entity and its affiliates as disclosed in the FDD.
• It's a good practice to ask your accountant to review the financial statements of any affiliated entities if they are provided or guaranteed.
• Inquire with the franchisor about the specific roles and responsibilities of each affiliated company mentioned.

Explanation

This risk was not identified in the FDD. Item 1 does not disclose any predecessors for the franchise system. This means the current franchisor is the original entity offering franchises under this brand, so there is no hidden history of past failures or issues under a prior owner to consider.

Potential Mitigations

• A business advisor can still help you research the history of the affiliate company that has been operating since 2015 to understand the brand's origin.
• Your attorney can confirm the lack of predecessors through their review of the corporate documents.
• Asking early franchisees about the history of the brand and its founders can provide valuable context.

Explanation

This risk was not identified. Item 3 of the FDD states that there has been no material litigation required to be disclosed. The absence of lawsuits, particularly from other franchisees alleging fraud or misrepresentation, is a positive sign, although it should be considered in the context of the system's very young age.

Potential Mitigations

• It is still prudent to ask current franchisees about any disputes they may have had with the franchisor, even if they didn't result in litigation.
• Your attorney can conduct a public records search to see if any litigation exists that might not have met the threshold for disclosure.
• A business advisor can help you understand what types of litigation are common in franchising.