Explanation

This risk was not identified in the FDD package. The franchisor, Casey Hawkins, Inc. (THB), was incorporated in 2002 and has been offering franchises for over two decades, with more than 150 outlets in operation. An unproven system would present higher risks, including the lack of an established brand, untested operating procedures, and potential instability. This franchise appears to be a mature and established brand in its industry.

Potential Mitigations

• When evaluating any franchise, it is prudent to have your business advisor assess the franchisor's operating history and system maturity.
• An analysis of the system's growth trajectory in Item 20 with your accountant can provide insight into its stability and market acceptance.
• Consulting with an attorney to understand the legal history in Item 3 can reveal issues that may arise in newer, less proven systems.

Explanation

This risk was not identified in the FDD package. The core business is operating espresso drive-thrus, a segment of the broader coffee industry. This market has demonstrated long-term consumer demand and is not considered a fad. A business based on a fad carries the risk that its popularity could decline quickly, potentially leaving you with a worthless investment and ongoing liabilities long after public interest has faded.

Potential Mitigations

• For any business concept, engaging a business advisor to research long-term market trends and consumer demand is a critical step.
• It is wise to evaluate a franchisor's commitment to research and development in Item 11 to see how they plan to adapt to changing tastes.
• An accountant can help you model the financial risks of a business with potentially short-lived appeal.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key executives have been with the company since its inception in the early 2000s, indicating extensive experience with the brand and its operations. Inexperienced management can be a significant liability for a franchise system, often leading to poor strategic decisions, inadequate franchisee support, and a higher risk of system-wide problems. The leadership at THB appears to be seasoned.

Potential Mitigations

• A careful review of the executive backgrounds in Item 2 with a business advisor is a key due diligence step for any franchise.
• Speaking with existing franchisees provides direct insight into the quality and competence of the management team.
• An attorney can help investigate the litigation history in Item 3, which can sometimes reflect on management's experience and conduct.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the company does not have a parent company and shows no signs of being owned by a private equity firm. Private equity ownership can introduce risks, as their typical focus on short-term returns may lead to decisions, such as cutting support or increasing fees, that do not align with the long-term health of franchisees' businesses.

Potential Mitigations

• It is important to have your attorney review Item 1 and any related exhibits to fully understand the franchisor's ownership structure.
• If private equity is involved, researching the firm's history with other franchise brands can provide valuable insights with the help of a business advisor.
• Speaking with franchisees who have operated under different ownership structures can reveal changes in franchisor behavior and support.

Explanation

This risk was not identified in the FDD package. Item 1 states that Casey Hawkins, Inc. has no parent company. If a franchisor is a subsidiary of a larger parent, the parent's financial health can be critical, yet their financial statements may not be provided. This can obscure the true financial stability and backing of the franchise system. In this case, the risk is not applicable as there is no parent company.

Potential Mitigations

• Your attorney should always verify the corporate structure described in Item 1 to ensure all parent and affiliate relationships are disclosed.
• If a parent company exists and provides guarantees, an accountant should review their financial statements for stability.
• Understanding the full corporate family with a business advisor helps assess where key decisions are made and where financial strength truly lies.

Explanation

This risk was not identified in the FDD package. Item 1 does not list any predecessors, indicating the company was not acquired from a prior operator but was developed by the current management group. When a franchisor has predecessors, it is important to investigate their history, as past problems like litigation or high franchisee turnover could be inherited by the new entity, posing a risk to new franchisees.

Potential Mitigations

• A careful review of Item 1 with your attorney will confirm if any predecessors exist.
• If a predecessor is identified, a business advisor can help you conduct research into its historical performance and reputation.
• Speaking with long-term franchisees who operated under a predecessor provides invaluable firsthand accounts of the system's history.

Explanation

This risk was not identified in the FDD package. Item 3 explicitly states, 'There is no litigation required to be disclosed in this Item.' A pattern of litigation, especially lawsuits brought by franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems. Similarly, a high volume of lawsuits initiated by the franchisor against its franchisees may suggest an overly aggressive or unsupportive culture.

Potential Mitigations

• Always have your attorney thoroughly review the litigation disclosures in Item 3.
• A business advisor can help you research online for any non-disclosed legal disputes or franchisee complaints.
• It is wise to ask current and former franchisees about their experiences with disputes within the system.