Explanation

The franchisor, Peri Peri Holdings LLC (Peri Peri Holdings), appears financially stable based on a review of its audited financial statements for 2021, 2022, and 2023. The statements show consistent profitability and positive members' equity with no significant signs of financial distress, such as a 'going concern' note from the auditors. Therefore, this specific risk was not identified in the FDD package.

Potential Mitigations

• An experienced franchise accountant should still review the complete financial statements, including all notes, to provide an independent assessment of the franchisor's financial health.
• It is advisable to ask your financial advisor to analyze trends in revenue sources, such as the balance between royalty income and sales to franchisees.
• Your attorney can help you understand any financial obligations or guarantees that may be linked to the franchisor's ongoing performance.

Explanation

This risk was not identified. The outlet data in Item 20 does not indicate overly rapid expansion that might strain the franchisor's ability to provide support. In fact, net franchise unit growth has been slow. In general, rapid growth can be a concern if a franchisor's support systems, such as training and field support staff, do not expand at a similar pace to adequately serve the growing number of franchisees.

Potential Mitigations

• When evaluating any franchise, having your business advisor assess the ratio of corporate support staff to the number of franchised units can provide insight into support capacity.
• Asking existing franchisees about the quality and timeliness of support is a crucial due diligence step your business advisor can guide you through.
• A review of the franchisor's financial statements with your accountant can help determine if they are investing in infrastructure to support their growth.

Explanation

This risk was not identified. Although the current franchisor entity was formed in 2019, Item 1 discloses a history with predecessor entities dating back to 2013. This indicates the operating system has been in development and use for a number of years and is not a new, unproven startup. An unproven system can present higher risks due to the lack of a track record, underdeveloped support, and minimal brand recognition.

Potential Mitigations

• For any franchise system, it is important to conduct extensive due diligence with your business advisor on the operational history of both company-owned and franchised units.
• Speaking with the earliest-opening franchisees can provide your business advisor with valuable insights into the evolution and maturity of the system.
• Your accountant can help analyze the financial performance over several years to gauge the stability and viability of the business model.

Explanation

This risk was not identified. The Port of Peri Peri is a fast-casual restaurant concept centered on peri-peri style chicken, a globally recognized food category. This type of business has demonstrated sustained consumer demand and is not based on a short-term trend or fad. Investing in a fad business is risky because your long-term contractual obligations remain even if consumer interest quickly fades, potentially leading to business failure.

Potential Mitigations

• Your business advisor can help you research the long-term market demand and competitive landscape for any food concept you consider.
• Evaluating a franchisor's commitment to research and development, as disclosed in Item 11, can offer insight into their plans for long-term relevance.
• Consider the business model's adaptability to changing consumer tastes and economic conditions with your financial advisor.

Explanation

This risk was not identified, as Item 1 indicates ownership by two limited liability companies and a Texas corporation, with no mention of a private equity firm. Private equity ownership can sometimes introduce risks, as their focus may be on short-term returns, which could lead to increased fees or reduced support for franchisees, rather than the long-term health of the brand. They also may have a predetermined timeline for selling the company.

Potential Mitigations

• If a franchisor is owned by a private equity firm, it is wise to have your business advisor research the firm's history with other franchise brands.
• Consulting with your attorney about the franchisor's right to assign the franchise agreement is important if the system might be sold.
• Speaking with franchisees who have been in the system before and after a private equity acquisition can provide valuable perspective.

Explanation

This risk was not identified. Item 1 discloses the parent companies, and the franchisor itself provides audited financial statements that appear stable. In some cases, a franchisor might be a thinly capitalized subsidiary, making the parent company's financial health critical. Failure to provide parent financials in such a scenario would obscure the true financial stability of the system. Here, that does not appear to be the case.

Potential Mitigations

• Your attorney should always verify the corporate structure and identify all parent and affiliate companies.
• If a parent company guarantees the franchisor's obligations, your accountant should insist on reviewing the parent's financial statements.
• Understanding the relationships between the franchisor, its parents, and affiliates is a key part of the due diligence process your professional advisors can assist with.

Explanation

This risk was not identified. Although Item 3 discloses one significant lawsuit against a predecessor, it does not reveal a broader pattern of litigation from multiple franchisees against the current franchisor. A pattern of litigation, particularly cases alleging fraud or breach of contract, can be a major red flag indicating systemic problems within a franchise organization. The absence of such a pattern here is a positive sign, though the single disclosed case remains a concern.

Potential Mitigations

• Your attorney should still perform a public records search to confirm that no other material litigation exists.
• Discussing any past or present disputes with current and former franchisees is a critical due diligence step your business advisor can facilitate.
• Understanding the franchisor's general approach to resolving disputes is important and can be assessed by talking to other franchisees.