Explanation

This risk was not identified in the FDD Package. Item 20 data from 2022 through 2024 shows no franchisee terminations, non-renewals, or cessations of operation. High turnover can be a major red flag indicating systemic issues like unprofitability or poor franchisor support. While the system is young, the disclosed data does not suggest a problem with franchisee churn at this time, which is a positive indicator for a new system.

Potential Mitigations

• Engage your accountant to analyze the Item 20 tables annually to monitor for any negative trends in franchisee turnover.
• Your business advisor can help you maintain open communication with other franchisees to stay informed about system-wide satisfaction.
• An attorney should be consulted if you ever notice a sudden spike in franchisee departures, as this could signal underlying problems.

Explanation

The business is an ice cream shop, a well-established industry. However, the specific 'Rainbow Cone' concept relies on a unique product presentation. While the brand has a long history in Chicago, its appeal and sustainability in new markets are less proven. Success may depend on its ability to compete against both novelty dessert trends and established national ice cream chains, presenting a moderate risk regarding its long-term market adaptability outside its home region.

Potential Mitigations

• Engaging a business advisor to research local market competition and the long-term viability of specialty dessert concepts is recommended.
• It is important to evaluate the franchisor's plans for product innovation and menu development to ensure the brand can adapt over time.
• You should create financial projections with your accountant that model both strong initial interest and potential leveling of demand.

Explanation

This risk was not identified in the FDD Package. The management team detailed in Item 2 appears to have extensive experience in the restaurant industry, primarily through their involvement with the affiliated Buona Beef brand. While the franchise entity itself is young, the key personnel have a long history of operating multi-unit restaurant businesses. This operational experience is a positive factor, suggesting they are not new to the complexities of the food service industry.

Potential Mitigations

• A business advisor can help you assess whether the management team's prior experience is directly relevant to this specific franchise concept.
• Speaking with current franchisees can provide insight into how management's experience translates into effective support and leadership.
• Your attorney can help you understand the management structure and the roles of the key executives.

Explanation

This risk was not identified in the FDD Package. Item 1 does not indicate that the franchisor is owned or controlled by a private equity firm. The ownership structure appears to be held by a small group of LLCs, which seem to be related to the founders of the affiliated Buona brand. This avoids the specific risks often associated with a private equity-driven focus on short-term returns over the long-term health of the franchise system.

Potential Mitigations

• Your attorney should always verify the ownership structure detailed in Item 1 and investigate the entities involved.
• It is good practice to ask the franchisor about any potential plans to sell the company with your business advisor.
• An accountant can review the financial statements for any signs of debt or transactions that might suggest PE-like financial engineering.

Explanation

This risk was not identified in the FDD Package. The franchisor, Five Flavors Franchising LLC, does not appear to have a parent company that requires disclosure under franchise law. While it has significant related-party transactions with its affiliate, Rainbow Cone LLC, the FDD provides financial statements for the franchisor entity itself. There is no indication of a hidden or undisclosed parent company whose financials are necessary for a complete risk assessment.

Potential Mitigations

• Your attorney should review the corporate structure and affiliate relationships described in Item 1 to confirm there is no undisclosed parent.
• An accountant should analyze the provided financials to ensure the franchisor appears to be a standalone entity for reporting purposes.
• It is prudent to discuss the affiliate relationships with a business advisor to understand their operational and financial impact.

Explanation

This risk was not identified in the FDD Package. Item 1 states that the franchisor has no predecessor. The assets and system were acquired by an affiliate from the original company in 2018, and this transaction is described. There is no hidden history of a prior franchisor entity with past issues like litigation or bankruptcy that would be relevant to your investment decision. The history provided appears to be straightforward.

Potential Mitigations

• Your attorney should always review Item 1 carefully to confirm the franchisor's corporate history and the absence of predecessors.
• A business advisor can help you research the history of the brand itself, even if there is no legal predecessor franchisor.
• Speaking with long-term employees or contacts in the brand's home market might provide additional historical context.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. The absence of a pattern of lawsuits filed by franchisees alleging fraud or by the franchisor against franchisees is a positive sign. It suggests a healthier franchisor-franchisee relationship compared to systems with significant legal disputes. However, this should be continually monitored as the system grows.

Potential Mitigations

• An attorney can perform an independent public records search to verify the absence of litigation.
• It is a good practice to ask current franchisees about the general state of relations with the franchisor.
• Your business advisor can help you establish clear communication channels with the franchisor to resolve potential disputes before they escalate.