Explanation

This risk was not identified in the FDD package. The data in Item 20 indicates the franchise system is shrinking, not growing rapidly. Rapid growth can strain a franchisor's ability to provide adequate support, so its absence here is notable, though the reasons for the system's contraction present their own set of risks.

Potential Mitigations

• Your business advisor can help you analyze the franchise system's growth trajectory shown in Item 20 to understand its stability.
• Even without rapid growth, it's important to have an accountant review the franchisor's financials to ensure they have adequate resources to support existing franchisees.
• Discussing the quality and consistency of support with current franchisees is a key due diligence step your attorney can help prepare you for.

Explanation

This risk was not identified. Waters Edge Wineries, Inc. (WEW) has been franchising since June 2012 and its principals have been involved in the wine business since 2004. While the system is not exceptionally large, it has more than a decade of operating history as a franchise and is therefore not considered a new or unproven system.

Potential Mitigations

• A business advisor can help you evaluate the franchisor's history and the maturity of its systems and brand recognition.
• When reviewing a franchise of any age, consulting with your attorney to understand all contractual obligations remains a crucial step.
• Speaking with long-term franchisees can provide valuable insight into the system's evolution, a task your business advisor can assist with.

Explanation

This risk does not appear to be present. The business model, a winery and bistro, is based on established consumer products and services (wine, food) that have long-term market demand. While subject to trends, the core concept is not typically considered a fad that is likely to disappear quickly.

Potential Mitigations

• A business advisor can help you conduct independent market research to confirm the long-term viability of this business concept in your local area.
• Discussing the business's seasonality and market trends with existing franchisees can provide practical insights.
• Your accountant can help you build financial projections that account for potential shifts in consumer tastes over the life of the franchise.

Explanation

This risk was not identified. Item 2 indicates that the key executives have been with the franchisor since its inception in 2012 and have prior experience in the wine industry dating back to 2004. This suggests a stable management team with significant industry and brand-specific experience.

Potential Mitigations

• Engaging a business advisor to review the backgrounds of the key management team in Item 2 is still a good practice.
• Asking current franchisees about their direct experiences with the management team can provide valuable, real-world context.
• Your attorney can help you understand how management's authority is defined in the Franchise Agreement.

Explanation

This risk was not identified in the FDD package. Item 1 and the financial statements in Exhibit G indicate the franchisor is privately owned by an individual, not a private equity firm. Therefore, the specific risks associated with PE ownership, such as a focus on short-term returns over system health, do not appear to be present.

Potential Mitigations

• It is always prudent to have your attorney confirm the ownership structure disclosed in Item 1 of the FDD.
• Understanding the long-term vision of any private owner is an important discussion to have with the help of a business advisor.
• An accountant's review of the financial statements can help verify the source of the company's capitalization.

Explanation

This risk was not identified. The FDD appears to properly disclose the franchisor entity, Waters Edge Wineries, Inc., and its key affiliate, BEKH Cellars Inc. There is no indication of a separate parent company whose financials or identity are being withheld.

Potential Mitigations

• A review of the corporate structure with your attorney is always recommended to ensure all relevant entities are disclosed.
• If an affiliate plays a key role, such as a primary supplier, having an accountant review its financial relationship with the franchisor is wise.
• Your attorney can help verify that the disclosures comply with FTC rules regarding parent and affiliate companies.

Explanation

This risk does not appear to be present. Item 1 notes a change in the state of incorporation from California to Delaware but does not disclose any predecessor entities from which the franchisor acquired the business or its assets. The business appears to have been operated by the same principals throughout its history.

Potential Mitigations

• Your attorney can help you verify the corporate history disclosed in Item 1.
• Even without predecessors, asking long-term franchisees about the history of the company can provide useful context.
• A business advisor can assist in researching public records for any undisclosed corporate history if concerns arise.