Explanation

The FDD's Item 20 tables do not show any franchisee terminations, non-renewals, or other cessations of business for the past three years. While low turnover is positive, zero reported cessations in a rapidly growing system of this size is unusual and warrants scrutiny. Prospective franchisees often rely on turnover data to gauge franchisee satisfaction and system health, so this lack of reported negative outcomes should be approached with caution during your due diligence.

Potential Mitigations

• It is crucial to contact a broad sample of current and former franchisees listed in Exhibit F to inquire about their experiences and the reasons any franchisees may have left.
• Your accountant can help you analyze the transfers reported in Item 20 to see if they might mask underlying issues.
• Ask the franchisor directly about the lack of any reported terminations or cessations to understand how they classify departing franchisees.

Explanation

This risk was not identified in the FDD package. The business model, a restaurant focused on sandwiches, soups, and salads, is a well-established concept within the fast-casual industry and is not based on a short-term trend or fad. However, it's always important to assess the long-term consumer demand for any business concept in your specific market.

Potential Mitigations

• A business advisor can help you research local market trends and competition to confirm the long-term viability of this concept in your area.
• Review the franchisor's plans for menu innovation and concept development in Item 11 to assess their strategy for staying relevant.
• Your financial advisor can assist in evaluating the business model's resilience to economic shifts and changing consumer tastes.

Explanation

This risk was not identified in the FDD package. Item 1 indicates the franchisor is owned by its individual principals, not a private equity firm. A key risk of PE ownership is the focus on short-term returns, which can sometimes conflict with the long-term health of franchisees. While this specific risk is not present, understanding the ownership structure and motivations of any franchisor is always an important part of due diligence.

Potential Mitigations

• Your attorney can help you confirm the ownership structure and identify the ultimate decision-makers within the franchise system.
• It is wise to research the background and business history of the individual owners listed in Item 2 with the help of a business advisor.
• Discussing the franchisor's long-term vision with your business advisor can provide insight into their commitment to franchisee success.

Explanation

This risk was not identified in the FDD package. Item 1 does not disclose any parent company. The franchisor, World of Sourdough Franchising, LLC, appears to be the top-level entity in the corporate structure. In some franchise systems, a thinly capitalized subsidiary is used as the franchisor, so it is important to verify that the entity you are contracting with holds the primary assets and operational responsibility.

Potential Mitigations

• Your attorney can help you verify the corporate structure of the franchising entity.
• It is prudent to have your accountant review the franchisor's balance sheet to ensure it holds the necessary assets to support the system.
• A business advisor can help assess whether the entity you are contracting with seems to be the primary operator of the franchise system.

Explanation

This risk was not identified in the FDD package. Item 1 states that the franchisor has no legal predecessor. However, you should be aware that Item 3 discloses litigation involving a separate company named "Sourdough & Co., Inc." and a consultant who was its president. This connection, while not a formal predecessor relationship, presents a related risk of brand confusion and legal entanglement, which is addressed separately in this report.

Potential Mitigations

• Ask your attorney to clarify the legal and operational distinctions between the franchisor and any similarly named entities mentioned in the FDD.
• A business advisor can help you research the history of the brand and its key personnel to uncover any informal predecessor relationships.
• In discussions with existing franchisees, it would be beneficial to ask about their awareness of any other "Sourdough" brands.