Explanation

This risk was not identified in the FDD package. As a new franchisor that began operating in 2024, there is no history of franchisee turnover yet. High turnover, indicated by many terminations, non-renewals, or closures in Item 20, can be a major red flag for systemic problems, such as a lack of franchisee profitability or poor support. You should monitor this data in future FDDs if you become a franchisee.

Potential Mitigations

• It is crucial to have your accountant analyze Item 20 tables in any future FDDs to calculate the annual franchisee turnover rate.
• A business advisor can help you compare turnover rates against any available industry benchmarks to gauge system health.
• If turnover data were present, your attorney would advise on contacting former franchisees to understand why they left the system.

Explanation

This risk was not identified in the FDD package. The business model is based on "Malatang," a widely known Chinese fast cuisine. While specific trends can fluctuate, this type of cuisine has a basis in established food categories. However, the success of any restaurant concept depends on sustained consumer interest and is a factor you must evaluate for yourself. Long-term viability is critical, as your contractual obligations continue regardless of market trends.

Potential Mitigations

• Engaging a business advisor to research the long-term market demand for this specific type of cuisine in your target location is advisable.
• It is important to evaluate the franchisor's plans for menu innovation and adaptation to evolving consumer tastes.
• A financial advisor can help you assess the business model's resilience to economic shifts and changing food trends.

Explanation

This risk was not identified in the FDD package. FDD Item 1 does not indicate that the franchisor is owned by a private equity firm. Such ownership can sometimes lead to a focus on short-term profitability over the long-term health of the franchise system. Prospective franchisees should always be aware of the franchisor's ownership structure as it can influence strategic decisions, fee structures, and the level of franchisee support.

Potential Mitigations

• It is good practice to have your attorney review Item 1 and any related corporate documents to confirm the ownership structure.
• Should the franchisor be sold to a private equity firm in the future, a business advisor could help research the firm's history with other brands.
• Understanding the franchisor's long-term vision, regardless of ownership, is a key part of due diligence.

Explanation

This risk was not identified in the FDD package. According to Item 1, Captain Business Management has no predecessors. In cases where a franchisor has acquired the system from a predecessor, it is important to review the predecessor's history for issues like litigation, bankruptcy, or high franchisee turnover, as these could indicate underlying problems that may persist with the new ownership. A clean slate, as presented here, means the focus is on the new entity's performance.

Potential Mitigations

• Your attorney should always verify the statements in Item 1 regarding predecessors and corporate history.
• If a predecessor existed, a business advisor would recommend researching its public record and reputation.
• In the absence of a predecessor, due diligence should focus more intensely on the experience and financial backing of the current management and ownership.

Explanation

This risk was not identified in the FDD package. Item 3 discloses no material litigation involving the franchisor or its management. A pattern of lawsuits, particularly those initiated by franchisees alleging fraud, misrepresentation, or breach of contract, would be a significant red flag. Similarly, a high volume of litigation initiated by the franchisor against franchisees could suggest an overly aggressive or litigious culture. The absence of such litigation is a positive indicator.

Potential Mitigations

• It is prudent to have your attorney confirm the litigation disclosures through independent searches, as FDD information can become outdated.
• A business advisor can help you understand what constitutes a normal level of litigation for a franchise system of a certain size and age.
• Always ask current franchisees about any informal disputes they may be aware of that have not risen to the level of formal litigation.