Explanation

The risk of a franchisor expanding too quickly, potentially straining its support systems, was not identified in this FDD package. Rapid growth can sometimes mean that a franchisor's resources for training, site selection, and operational support are spread too thin, which can negatively affect franchisee success. Careful analysis of growth rates against support capabilities is important.

Potential Mitigations

• Your business advisor can help you evaluate if the franchisor's growth plans align with its apparent support infrastructure.
• Posing questions to the franchisor about how they scale support services to match outlet growth can provide valuable insight.
• An accountant's review of the franchisor's financials can help determine if they are investing sufficiently in support systems.

Explanation

This specific risk, that the business concept might be a short-lived trend, was not identified. A 'fad' business model relies on temporary popularity rather than sustained consumer demand, which can pose a significant long-term risk. Even if the trend fades, your contractual obligations, such as royalty payments, would continue. Evaluating the long-term market need for a franchise's products or services is a key part of due diligence.

Potential Mitigations

• A business advisor can help you conduct independent market research to assess the long-term consumer demand for the services offered.
• It is wise to ask the franchisor about their plans for future innovation and adaptation to changing market conditions.
• Consider the business's resilience to economic shifts and evolving consumer preferences with your financial advisor.

Explanation

The executive team at Doan, as described in Item 2, appears to have significant prior experience in the same or highly related industries, such as with affiliate SCA Franchising. This suggests they possess relevant knowledge of the business operations. However, the franchisor entity itself is relatively new, which presents its own set of risks related to the maturity of the franchise system's specific support structures and processes.

Potential Mitigations

• You should still discuss the management team's specific franchising track record with your business advisor to gauge their ability to support franchisees.
• Posing questions to current franchisees about the quality and effectiveness of management's support is a valuable step.
• Your attorney can help you understand the distinction between the management's experience and the franchise system's operating history.

Explanation

This FDD package does not indicate that the franchisor is owned by a private equity firm. This type of ownership can sometimes lead to a focus on short-term profits over the long-term health of the franchise system. However, the Franchise Agreement does permit the franchisor to assign its rights to any person or legal entity, which could include a future sale to a private equity firm or other buyer with different operational philosophies.

Potential Mitigations

• Your attorney should review the assignment clause to clarify your rights if the franchise system is sold in the future.
• Inquiring about any long-term plans for the sale of the company can provide context for your investment.
• A business advisor can help you understand the potential impacts that a change in ownership could have on the system.

Explanation

This specific risk, related to an incomplete or problematic history of a predecessor company, was not identified. Item 1 discloses that the franchisor's affiliate acquired assets from DG Inc. in 2020 and that some initial franchisees were operators under the previous brand. While this indicates a predecessor relationship, no specific issues like undisclosed litigation or bankruptcy related to this predecessor are apparent in the FDD.

Potential Mitigations

• Your attorney can help you frame questions for the franchisor regarding the transition from the predecessor entity.
• It is a good practice to ask long-tenured franchisees about their experience under both the current franchisor and any predecessors.
• A business advisor can help you research the history of the predecessor brand for any public information.

Explanation

This risk was not identified in the FDD. Item 3 states, 'No litigation is required to be disclosed in this Item.' This indicates that the franchisor, its predecessors, and its management have not been involved in the types of material litigation that the FTC rule requires to be disclosed, which is a positive sign. Such disclosures often involve claims of fraud, misrepresentation, or violations of franchise law.

Potential Mitigations

• Although no litigation is disclosed, your attorney can still perform a public records search as a final check.
• It is always a valuable due diligence step to ask current franchisees about their experiences and overall satisfaction with the franchisor.
• Understanding the dispute resolution clauses in the franchise agreement with your attorney is important for any future disagreements.