Explanation

This risk was not identified in the FDD Package. The franchise system appears to be contracting rather than undergoing rapid expansion, as shown in Item 20. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here, while due to negative trends, means this specific risk is not a concern.

Potential Mitigations

• Your business advisor can help you evaluate if the franchisor's current size and growth rate align with your investment goals.
• Reviewing the franchisor's strategic plans for future growth with your attorney can provide insight into their long-term vision.
• An accountant's review of Item 21 can help determine if the franchisor has the financial resources to support its current system size.

Explanation

This risk was not identified in the FDD Package. The franchisor began offering franchises in 2009, and its affiliate has operated restaurants since 1984. This indicates a mature and established business concept, not a new or unproven one. An unproven system carries higher risks of failure and underdeveloped support structures.

Potential Mitigations

• A business advisor can help you investigate the history and reputation of any franchise system you consider.
• Speaking with the longest-tenured franchisees can provide valuable perspective on the system's evolution and stability.
• Your attorney should review the franchisor's history as disclosed in Item 1 for any signs of instability.

Explanation

This risk was not identified in the FDD Package. The business operates in the casual Mexican restaurant segment, which is a well-established and long-standing part of the food service industry. Investing in a concept based on a fleeting trend can be risky, as the business may not be viable once consumer interest wanes.

Potential Mitigations

• A business advisor can help you research the long-term market trends for any industry you plan to enter.
• Analyzing the franchisor's plans for menu innovation and brand adaptation is a useful exercise with your financial advisor.
• Reviewing market data and competitor performance can help gauge the stability of the business sector.

Explanation

This risk was not identified in the FDD Package. Item 2 indicates that the franchisor's management team possesses extensive and long-term experience within the restaurant industry and with the Margaritas brand specifically. Inexperienced leadership can pose a significant risk, as it may lead to poor strategic decisions and inadequate franchisee support.

Potential Mitigations

• Your business advisor can help you research the backgrounds and track records of the key executives in any franchise system.
• In discussions with current franchisees, it is wise to ask about their perception of the management team's competence and support.
• An attorney can help review Item 2 of the FDD to verify the disclosed experience of the management team.

Explanation

This risk was not identified in the FDD Package. There is no indication in Item 1 that the franchisor is owned by a private equity firm. Private equity ownership can sometimes introduce risks related to prioritizing short-term investor returns over the long-term health of the franchise system.

Potential Mitigations

• A business advisor can help you research the ownership structure of any franchise system to identify potential influences on its strategy.
• Reviewing Item 1 of the FDD with your attorney is crucial to understand the franchisor's corporate structure and any parent companies.
• Inquiring with existing franchisees about any recent changes in ownership can provide valuable insight.

Explanation

This risk was not identified in the FDD Package. The franchisor discloses its affiliate, Margaritas Management Group, Inc., in Item 1. The primary financial risk stems not from a failure to disclose this entity, but from the franchisor guaranteeing the affiliate's debt without providing the affiliate's financial statements, a risk detailed elsewhere.

Potential Mitigations

• Your attorney should always verify if a franchisor has parent companies or material affiliates disclosed in Item 1.
• If a parent or affiliate guarantees the franchisor's performance, an accountant should review their financials if provided.
• Understanding the full corporate structure is key to a complete risk assessment, a task your business advisor can assist with.

Explanation

This risk was not identified in the FDD Package. The franchisor does not list any predecessors in Item 1. A predecessor is a company from which the franchisor acquired the major portion of its assets, and a history of predecessor issues could indicate inherited problems for the franchise system.

Potential Mitigations

• When reviewing an FDD, it is important to have your attorney check Item 1 for any mention of predecessors.
• If predecessors are listed, a business advisor can help you research their history for any signs of trouble.
• Asking long-term franchisees about their experience under any previous ownership can reveal important historical context.

Explanation

This risk was not identified in the FDD Package. Item 3 states that no litigation is required to be disclosed. A pattern of litigation, especially lawsuits initiated by franchisees alleging fraud or breach of contract, can be a significant red flag about the health and integrity of a franchise system.

Potential Mitigations

• A thorough review of Item 3 with your franchise attorney is essential to understand any disclosed litigation history.
• Your attorney can conduct independent searches for litigation involving the franchisor that may not be disclosed in the FDD.
• Discussing any litigation concerns with current and former franchisees can provide valuable context.