Explanation

This risk was not identified. Item 20 data does not indicate that the franchisor is expanding at an unsustainable pace. The number of franchised outlets has been relatively stable, with only a net increase of one unit over the last three years. This suggests a conservative growth strategy rather than rapid expansion that might strain support resources. Controlled growth can be a positive sign, indicating a focus on supporting existing franchisees rather than rapid sales.

Potential Mitigations

• In discussions with the franchisor, it would be beneficial to ask about their future growth plans and how they intend to scale support systems.
• Speaking with your business advisor can help evaluate whether the current slow growth is a strategic choice or a sign of low demand.
• A review of the support systems described in Item 11 with your attorney will clarify the services you should expect regardless of growth rate.

Explanation

This risk was not identified. Item 2 discloses that the key executives have significant and long-term experience with the brand and its parent company, Books-A-Million. For example, the President and CFO has been with the company since 2014 and the parent since 2012. This level of experience can be beneficial, suggesting stability in leadership and a deep understanding of the business operations. Experienced management can provide better support and strategic direction for the franchise system.

Potential Mitigations

• It is still advisable to discuss the management team's specific franchising experience with your business advisor.
• When speaking with current franchisees, asking about their direct experiences with the management team can provide valuable qualitative feedback.
• An attorney can help you understand the implications of the management team's deep ties to the parent company, which is also a major franchisee.

Explanation

This risk does not appear to be present in the typical sense of an outside private equity firm. However, Item 1 shows the franchisor is part of a corporate structure majority-owned by Books-A-Million, Inc. (BAM), a large public-facing retailer. While not a traditional PE firm, this ownership structure means strategic decisions may be influenced by the parent company's broader corporate objectives, which may not always align perfectly with the interests of individual franchisees.

Potential Mitigations

• Understanding the complex relationship with the parent company is critical; your attorney should review all related-party disclosures in the FDD.
• You should discuss with a business advisor how a parent company that is also a major franchisee might influence system-wide decisions.
• Ask current franchisees about their experiences with how parent company ownership affects the franchise system.

Explanation

The FDD properly discloses that Yogurt Mountain Holding, LLC is the parent of the franchisor, Yogurt Mountain Franchising, LLC (YMF). Item 21 further clarifies that the parent guarantees the franchisor's performance, and the parent's audited financial statements are provided as Exhibit C. This level of transparency meets disclosure requirements and allows you to assess the financial health of the entity guaranteeing the obligations, which is a positive disclosure practice.

Potential Mitigations

• Your accountant should review the parent company's financial statements in Exhibit C to assess its ability to back the guarantee.
• It is wise to have an attorney confirm that the parent guarantee is properly executed and legally binding.
• A business advisor can help you understand the entire corporate structure and the relationships between the different entities.

Explanation

This risk was not identified. Item 1 states that the franchisor has no predecessor. This simplifies the due diligence process, as there is no prior corporate history of another entity operating the franchise system to investigate for potential inherited issues, past litigation, or undisclosed problems. Your review can focus solely on the history and performance of the current franchisor entity since its inception in 2010.

Potential Mitigations

• Your attorney should still verify the franchisor's corporate history to confirm the 'no predecessor' statement is accurate.
• A discussion with your business advisor about the franchisor's full history since 2010 remains a prudent step in your due diligence.
• Even without a predecessor, reviewing the franchisor's litigation and bankruptcy history in Items 3 and 4 is crucial.

Explanation

This risk was not identified in the document. Item 3 states, 'No litigation is required to be disclosed in this Item.' This indicates that in the last fiscal year, there were no material legal actions of the types required to be disclosed, such as those involving franchise law violations, fraud, or significant franchisee disputes. The absence of such litigation can be a positive indicator of the franchisor's relationship with its franchisees and its legal compliance.

Potential Mitigations

• It is still prudent to have your attorney conduct an independent public records search for any litigation not meeting the specific disclosure thresholds of Item 3.
• You can gain further confidence by asking current and former franchisees about any past disputes they are aware of.
• A business advisor can help you interpret the absence of litigation in the context of the franchise's size and age.