Explanation

This risk was not identified in the FDD Package. Casey Hawkins, Inc. (the Franchisor) began offering franchises in March 2002, as stated in Item 1. An unproven system can present risks because its business model, brand recognition, and support infrastructure are not well-established, potentially leading to higher failure rates.

Potential Mitigations

• When evaluating any franchise, a business advisor can help you assess the franchisor's operating history and track record of success.
• Inquiring with the earliest franchisees about their experience can provide insight into how a system has matured, a task your attorney can assist with.
• An accountant should review the financial statements to ensure the franchisor is stable and not overly reliant on initial franchise fees.

Explanation

This risk was not identified in the FDD Package. The business is described in Item 1 as an espresso drive-thru, which is part of the well-established and enduring coffee industry. A fad business, tied to a short-lived trend, carries the risk that consumer interest will decline, potentially leaving you with a failing business and long-term contractual obligations.

Potential Mitigations

• It is wise to have a business advisor help you research the long-term market demand and sustainability for any industry you consider entering.
• Analyzing a franchisor's plans for innovation and adaptation can provide insight into their long-term vision.
• Your financial advisor can help assess a business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD Package. The executive team detailed in Item 2 appears to have significant and long-term experience in the business and in franchising. Inexperienced management can be a major risk, as it may lead to poor strategic decisions, weak operational systems, and inadequate support for franchisees, even if the business concept itself is sound.

Potential Mitigations

• A thorough vetting of the management team's background in both the industry and franchising is a crucial due diligence step.
• Your business advisor can help assess if the leadership team has the necessary skills to manage growth and support franchisees effectively.
• Speaking with current franchisees often reveals the true quality and competence of the franchisor's management team.

Explanation

This risk was not identified in the FDD Package. Item 1 indicates the franchise is founder-owned and does not mention any ownership by a private equity firm. When a PE firm owns a franchisor, there can be a risk that its focus on short-term returns may lead to decisions, such as cutting franchisee support or increasing fees, that are not aligned with the long-term health of the brand.

Potential Mitigations

• If considering a PE-owned franchise, having a business advisor help research the firm's history with other franchise brands is recommended.
• Speaking with franchisees who have operated under PE ownership can provide direct insight into any changes in the system.
• Your attorney should analyze the franchise agreement for terms that might change upon a future sale of the company.

Explanation

This risk was not identified in the FDD Package. Item 1 clearly states, "We have affiliates but we have no parent company." Failing to disclose a parent company can be a risk because it may obscure the true financial stability and controlling interests behind the franchisor, preventing you from making a fully informed decision.

Potential Mitigations

• An attorney can help verify the franchisor's corporate structure and identify any undisclosed controlling entities.
• When a parent company exists and provides guarantees, your accountant should review its financial statements for a complete picture of the system's stability.
• Ensuring all related entities are properly disclosed is a key part of the legal review of the FDD.

Explanation

This risk was not identified in the FDD Package. Item 1 does not disclose any predecessors for Casey Hawkins, Inc. A predecessor is a company from which the franchisor acquired the major portion of its assets. Concealing or having a negative history with predecessors could hide past failures, litigation, or other problems within the franchise system.

Potential Mitigations

• Your attorney should always review Item 1 carefully for any mention of predecessors and their history.
• If a predecessor exists, independent research into its track record can uncover valuable information about the system's past.
• Asking long-term franchisees about their experience under any previous ownership can provide important historical context.

Explanation

This risk was not identified in the FDD Package. Item 3 states, "There is no litigation required to be disclosed in this Item." A pattern of litigation, especially franchisee-initiated lawsuits alleging fraud or misrepresentation, can be a significant warning sign of systemic problems within a franchise.

Potential Mitigations

• A franchise attorney should always be engaged to carefully review the nature, frequency, and outcomes of any disclosed litigation in Item 3.
• Independent online research can sometimes reveal additional litigation or disputes not required to be disclosed in the FDD.
• Discussing any disclosed litigation with current and former franchisees can provide valuable context.