Explanation

This risk was not identified. The audited financial statements for WSR Franchise, LLC (WSR) show it to be in strong financial health, with significant profitability, positive cash flow, and a strong balance sheet. The company's net income and member's equity grew substantially between 2023 and 2024. A franchisor's financial stability is crucial as it supports their ability to provide ongoing services, support, and investment in the brand, which this franchisor appears capable of doing.

Potential Mitigations

• An experienced franchise accountant should review the franchisor's financial statements, including all footnotes and the auditor's report.
• Discussing the franchisor's financial health and growth strategy with your business advisor can provide additional context.
• Ask your accountant to assess the franchisor's reliance on initial franchise fees versus ongoing royalties for its revenue.

Explanation

The franchise system is experiencing steady and significant growth, adding 10 to 12 franchised outlets per year over the last three years. While growth is often positive, rapid expansion can sometimes strain a franchisor's ability to provide adequate training and support to all units. It is important to verify that the franchisor's support infrastructure is scaling appropriately to meet the needs of its growing network of franchisees.

Potential Mitigations

• Question the franchisor about their specific plans and resources for scaling support infrastructure to match unit growth.
• In your discussions with a broad range of existing franchisees, inquire about the current quality and responsiveness of franchisor support.
• Your business advisor can help you assess if the growth rate seems manageable or poses a risk to support quality.

Explanation

This risk was not identified. The franchisor, WSR, has been offering franchises since August 2011, and its predecessor company has operated a similar business since 2005. The management team has extensive experience in the restaurant brokerage industry, dating back to 2004. An established system with experienced leadership can reduce risks associated with unproven business models or inadequate support, which are more common with new or emerging franchise brands.

Potential Mitigations

• It is still prudent to have your business advisor help you conduct due diligence on the management team's reputation and track record.
• Discuss the franchisor's history and evolution with long-term franchisees to gain their perspective on the system's stability.
• Your attorney should verify the business history as disclosed in Item 1 of the FDD.

Explanation

This risk does not appear to be present. The business model is restaurant brokerage, which serves a persistent need within the food service industry for buying and selling businesses. This is a specialized professional service rather than a consumer-facing trend. The long-term viability of such a business is tied to the health of the restaurant industry itself, not a potentially fleeting consumer fad, suggesting a more stable underlying demand for your services.

Potential Mitigations

• A business advisor can help you assess the long-term demand for restaurant brokerage services in your local market.
• Investigate the stability and trends of the independent restaurant sector as part of your due diligence.
• Discuss the franchisor's strategies for adapting to changes in the restaurant and real estate industries with your attorney.

Explanation

This risk was not identified in the FDD. The principal executives, Eric and Robin Gagnon, have been involved with the We Sell Restaurants brand and restaurant brokerage since 2004 and 2006, respectively. They have served as executives of the franchisor entity since its formation in 2011. This indicates significant experience in both the specific industry and in managing this franchise system, which can be a positive factor for franchisee support and system stability.

Potential Mitigations

• A thorough due diligence process should still include verifying the reputation of the management team within the industry.
• Speaking with current franchisees about their direct experiences with the leadership team can provide valuable insights.
• Your business advisor can help you assess how the management's experience translates into effective franchisee support systems.

Explanation

This risk was not identified. The FDD indicates WSR is a privately held limited liability company. It does not disclose ownership by a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the franchise system. The absence of this ownership structure may suggest a different set of priorities for the franchisor, though this should be verified through due diligence.

Potential Mitigations

• It is still wise to ask the franchisor about their long-term vision and any potential plans for selling the company.
• Your attorney can help you research the ownership structure of the franchisor and its parent company, WSR Holdings, LLC.
• Discuss the stability and philosophy of the current ownership with existing franchisees.

Explanation

This risk was not identified. The FDD clearly discloses a parent company, WSR Holdings, LLC, but notes it does not operate any businesses or sell franchises. The franchisor entity, WSR Franchise, LLC, appears to be well-capitalized on its own, with strong financial statements provided in Exhibit A. Therefore, the parent's financials are not required for disclosure and their absence does not appear to mask any financial weakness of the franchisor.

Potential Mitigations

• An accountant should review the franchisor's financials to confirm its standalone stability.
• Your attorney can verify the corporate structure and the roles of the parent and affiliate companies as disclosed.
• In discussions with the franchisor, you could ask about the role and function of the parent company, WSR Holdings, LLC.

Explanation

This risk was not identified. The FDD clearly discloses a predecessor entity, We Sell Restaurants, Inc., and provides its history. This predecessor has no disclosed history of bankruptcy in Item 4 or litigation in Item 3. Full disclosure of a predecessor's history is important for you to have a complete picture of the system's background and any potential inherited issues, and the disclosure here appears to be straightforward and without negative elements.

Potential Mitigations

• Your attorney should review the information on the predecessor in Items 1, 3, and 4.
• In your due diligence calls, you could ask long-term franchisees about their experience with the system under the predecessor entity.
• A business advisor can help you assess how the transition from the predecessor to the current franchisor may have impacted the system.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." This indicates an absence of the type of litigation that the FTC rule deems material for disclosure, such as actions involving fraud, violation of franchise law, or other significant matters. A clean litigation history can be a positive indicator, suggesting fewer disputes between the franchisor and its franchisees or other parties.

Potential Mitigations

• It's advisable to have your attorney perform an independent search for litigation involving the franchisor, its parent, and principals.
• You should still ask current and former franchisees about their experiences with disputes, even if they didn't result in litigation.
• Understanding the dispute resolution process in the Franchise Agreement with your attorney is important regardless of past litigation history.