Explanation

The risk of high franchisee turnover was not identified, as Item 20 shows Urban Wings has not had any franchised outlets operating yet. While this means there is no negative turnover history, it also means the success of the franchise model is entirely unproven. You will be among the first to test its viability, which carries its own significant risks.

Potential Mitigations

• Engaging a business advisor is crucial to evaluate the inherent risks of joining a new, unproven franchise system.
• Speaking with the operators of the single company-owned location could provide some operational insights for you and your accountant.
• Your attorney should review the agreement for any protections offered to early-adopter franchisees.

Explanation

This risk was not identified, as the franchise system has not yet begun to grow. The franchisor's ability to manage growth and adequately support an expanding network of franchisees is untested. A key risk in franchising is when a franchisor's support infrastructure cannot keep pace with its unit sales, leading to a decline in service quality for all franchisees.

Potential Mitigations

• Discussing the franchisor's planned growth strategy and the scalability of their support systems with a business advisor is recommended.
• Your attorney can help you understand the franchisor's contractual obligations to provide support regardless of system size.
• Inquiring about the backgrounds of the support staff with the franchisor can provide insight into their capacity for future growth.

Explanation

The risk of the business being a fad was not identified. The core offering is chicken wings, a well-established and popular category in the food service industry with sustained consumer demand. Fad businesses are risky because demand can disappear quickly, leaving franchisees with a worthless investment even though their contractual obligations continue.

Potential Mitigations

• A business advisor can help you research local market competition and long-term demand for this type of restaurant concept.
• Reviewing the menu and franchisor's plans for product innovation can provide insight into its adaptability to changing consumer tastes.
• Your accountant can help model financial scenarios based on varying levels of consumer demand.

Explanation

This risk was not identified. The disclosures in Item 1 do not indicate that Urban Wings is owned by a private equity firm. When a PE firm owns a franchisor, there can be a risk that short-term financial goals for investors may be prioritized over the long-term health of the franchisees and the brand.

Potential Mitigations

• Your attorney can help you verify the ownership structure of the franchisor entity through public records.
• Reviewing the 'Assignment' clause in the Franchise Agreement with your attorney is important to understand what happens if the system is sold in the future.
• A business advisor can help you research the background of the individual owners.

Explanation

This risk was not identified, as Item 1 explicitly states that Urban Wings has no parent entities. In some cases, a franchisor might be a thinly capitalized subsidiary, and the financial health of a parent company could be critical to its survival. Full disclosure is required by law.

Potential Mitigations

• Asking your attorney to perform a corporate search can confirm the ownership structure of the franchisor.
• Your accountant can analyze the franchisor's own financial statements for any signs of reliance on related parties.
• Ensure that any entity providing a guarantee of the franchisor's obligations also provides its financial statements for review by your accountant.

Explanation

This risk was not identified, as Item 1 discloses that the franchisor has no predecessors. A predecessor is a company from which the franchisor acquired the main assets of the business. A history of issues with a predecessor, such as litigation or bankruptcy, could indicate underlying problems with the business model that have been carried over to the new entity.

Potential Mitigations

• It is still valuable to have a business advisor research the business history of the individual principals named in Item 2.
• Your attorney can confirm the lack of legal predecessors through public record searches.
• Speaking with anyone involved in the single company-owned store could reveal more about the brand's history.

Explanation

This risk was not identified, as Items 3 and 4 disclose no history of litigation or bankruptcy involving the franchisor or its management. A pattern of litigation, especially lawsuits from franchisees alleging fraud or misrepresentation, can be a major red flag indicating systemic problems within a franchise.

Potential Mitigations

• Your attorney can conduct an independent search of public court records to verify the absence of litigation.
• It's good practice to discuss any past disputes or legal issues with current and former franchisees, even if not disclosed in the FDD.
• Always ask the franchisor directly if there have been any material disputes, even if they did not result in formal litigation.