Explanation

This risk was not identified. The audited financial statements for the franchisor, Zaxby's SPE Franchisor LLC (Zaxby's), and its support affiliate, Zaxby's Franchising LLC, appear to show significant revenue, profitability, and positive net worth. Strong financials suggest the franchisor has the resources to support the system. However, financial health can change over time.

Potential Mitigations

• Engage a qualified accountant to perform a thorough review of the complete, audited financial statements and all accompanying notes.
• Your accountant should analyze the franchisor's balance sheet, income statement, and cash flow statement trends over the past three years.
• Discuss the franchisor's financial condition and its ability to support your business with your business advisor.

Explanation

This risk was not identified. The data presented in Item 20's tables for the last three years shows a very low rate of franchisee terminations, non-renewals, and other cessations relative to the total number of operating units. A low turnover rate is generally a positive indicator of franchisee satisfaction and system stability.

Potential Mitigations

• An accountant can help you calculate the annual franchisee turnover rate from Item 20 data to verify system stability.
• You should still contact a representative sample of current and former franchisees listed in the FDD to discuss their experiences.
• Your attorney can help you formulate questions to ask former franchisees about their reasons for leaving the system.

Explanation

This risk was not identified. Although the current franchisor entity was formed in 2021, it is part of the Zaxby's system that has been franchising since 1994. The brand has a long operational history and a large number of existing franchised and company-owned restaurants, indicating a well-established concept rather than an unproven one.

Potential Mitigations

• A thorough review of the franchisor's history and its predecessors in Item 1 with your attorney is important for any franchise investment.
• Your business advisor can help research the brand's history and market reputation.
• Even with an established system, speaking with franchisees who have been in the system for different lengths of time is a crucial due diligence step.

Explanation

This risk was not identified. The quick-service chicken restaurant industry is a well-established and long-standing segment of the restaurant market. Zaxby's has operated for decades, suggesting sustained consumer demand for its products rather than a business model based on a short-term trend or fad.

Potential Mitigations

• Consult with a business advisor to assess the long-term consumer demand and competitive landscape for the specific industry.
• Review the franchisor's history of product innovation and adaptation in Item 1 and Item 11.
• An analysis of the business's resilience through various economic cycles should be discussed with your financial advisor.

Explanation

This risk was not identified. The executive profiles in Item 2 show a management team with extensive prior experience in the restaurant and franchise industries at large, well-known companies. This depth of relevant experience suggests the leadership team is qualified to manage a large franchise system.

Potential Mitigations

• It is still prudent to conduct your own research on the professional background and reputation of the key executives listed in Item 2.
• When speaking with current franchisees, ask about their direct experiences with the management team's competence and support.
• A business advisor can help you evaluate the collective experience of the leadership team in relation to the system's needs.

Explanation

This risk was not identified. Item 1 of the FDD clearly discloses the ultimate parent company and the corporate structure, including the 2021 securitization transaction. Financial statements for both the franchisor entity and its primary support affiliate are provided as exhibits, offering a transparent view of the system's financial arrangement.

Potential Mitigations

• An attorney should always confirm that the FDD properly discloses all parent and affiliate companies as required by law.
• Your accountant should review the financials of any parent or guarantor company if they are provided.
• It is wise to ask the franchisor to draw a simple organizational chart to clarify relationships between entities.

Explanation

This risk was not identified. Item 1 of the FDD discloses the predecessor entity, Zaxby's Franchising LLC (ZFL), and describes the 2021 restructuring. There is no indication of hidden negative history; in fact, ZFL's own audited financial statements are provided for informational purposes, adding a layer of transparency.

Potential Mitigations

• Engage your attorney to review all disclosures about predecessors in Items 1, 3, and 4.
• Speaking with long-term franchisees who operated under the predecessor can provide valuable historical context.
• A business advisor can help you research the public reputation and history of any predecessor entities.

Explanation

This risk was not identified. Item 3 of the FDD states, "No litigation is required to be disclosed in this Item." The absence of significant lawsuits initiated by or against the franchisor, particularly those involving claims of fraud or breach of contract, is a positive indicator for a system of this size.

Potential Mitigations

• It is prudent to have your attorney conduct an independent public records search for litigation involving the franchisor, as some cases may not meet the criteria for FDD disclosure.
• Asking current franchisees about any past or present disputes within the system can provide valuable insight.
• Your attorney should review any state-specific addenda that may modify litigation disclosures or rights.