16 Handles
Food and Beverage
Founded 201131 locationsCompany Profile
Year Founded:2011
16 Handles Franchise Cost
| Franchise Fee: | $30,000Key Metric |
| Total Investment: | $250,000 - $657,000Key Metric |
| Liquid Capital: | $72,500 |
| Royalty Fee: | 6% of gross sales |
| Marketing Fee: | 2% of gross sales |
Quick ROI Calculator
Based on 16 Handles's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:31
Scale relative to 1,000 locations
Franchised Units:31
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AI-Powered Due Diligence Analysis
Our advanced AI analyzes Franchise Disclosure Documents (FDDs) to identify potential risks and opportunities across 10 critical categories.
19
High Risk
Critical items
37% of total
24
Medium Risk
Monitor closely
46% of total
9
Low Risk
Manageable items
17% of total
52
Total Items
Factors analyzed
10 categories
5.96
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
7 risks identified
2
3
2
Limited Operating History of Franchisor Entity
High
Explanation:
- The franchisor entity, 16 HANDLES FRANCHISING LLC, was formed very recently (June 14, 2022) and only began offering franchises on September 12, 2022.
- This limited operating history as a franchisor presents a significant risk as there is no established track record of successfully supporting and growing a franchise network under the current ownership structure.
- The newness of the franchisor entity makes it difficult to assess their long-term viability and ability to provide ongoing support and resources to franchisees.
Potential Mitigations:
- Carefully review the experience and background of the management team and predecessor company to assess their expertise in franchising and the frozen yogurt industry.
- Speak with existing franchisees (operated under the predecessor) about their experiences and satisfaction with the brand and support provided.
- Seek legal counsel to thoroughly review the Franchise Agreement and understand your rights and obligations.
FDD Citations:
- Item 1: "We are a Delaware limited liability company formed on June 14, 2022."
- Item 1: "We began offering franchises on September 12, 2022."
Recent Assignment of Assets and Franchise Agreements
Medium
Explanation:
- All assets and franchise agreements were recently assigned from the predecessor, Yo Fresh Inc., to the current franchisor on August 19, 2022.
- This recent transfer could lead to unforeseen operational challenges, disruptions in support services, or potential legal disputes.
Potential Mitigations:
- Inquire about the reasons for the asset transfer and any potential impact on franchisees.
- Review the terms of the assignment agreement to understand how it affects existing franchise agreements and future operations.
- Seek legal counsel to assess any potential risks associated with the asset transfer.
FDD Citations:
- Item 1: "On August 19, 2022 our Predecessor assigned all of its assets, including all franchise agreements, to us."
Dependence on Affiliated Stores
Medium
Explanation:
- The franchisor's affiliates own and operate seven 16 Handles stores, which represent a significant portion of the brand's current presence.
- Over-reliance on affiliated stores raises concerns about the franchisor's commitment to franchisee success and potential conflicts of interest.
Potential Mitigations:
- Inquire about the franchisor's plans for future franchise development and their strategy for balancing corporate-owned and franchised locations.
- Review the Franchise Agreement for any provisions addressing potential conflicts of interest between the franchisor and its affiliates.
FDD Citations:
- Item 1: "Our affiliates listed below own and operate seven 16 Handles stores in New York, New York:"
Limited Geographic Concentration
Medium
Explanation:
- All of the franchisor's affiliated stores are located in New York City. This geographic concentration may limit the franchisor's understanding of different market dynamics and their ability to support franchisees in other regions.
Potential Mitigations:
- If considering a franchise outside of New York City, inquire about the franchisor's experience and support capabilities in that specific market.
- Research the local market conditions and competition to assess the potential for success in your target area.
FDD Citations:
- Item 1: Lists all affiliate stores located in New York, NY.
No Direct Operating Experience by Franchisor
High
Explanation:
- The franchisor explicitly states that they "have not conducted a business of the type you will be operating and do not engage in any types of business activities other than franchising and providing services to our franchisees."
- This lack of direct operating experience raises concerns about their ability to provide practical guidance and support to franchisees on day-to-day operational challenges.
Potential Mitigations:
- Thoroughly evaluate the experience and background of the management team to assess their expertise in the frozen yogurt industry and franchising.
- Speak with existing franchisees (operated under the predecessor) about their experiences and the level of support received.
- Seek expert advice from industry consultants or experienced franchisees in the food and beverage sector.
FDD Citations:
- Item 1: "We have not conducted a business of the type you will be operating and do not engage in any types of business activities other than franchising and providing services to our franchisees."
Potential for Changes to the System
Low
Explanation:
- The FDD states that the franchisor "may periodically change and improve the System and you must comply with each change."
- While system updates can be beneficial, mandatory changes could involve unexpected costs and disruptions for franchisees.
Potential Mitigations:
- Carefully review the Franchise Agreement for details on how system changes are implemented and any associated costs for franchisees.
- Inquire about the franchisor's process for communicating system changes to franchisees and soliciting feedback.
FDD Citations:
- Item 1: "We may periodically change and improve the System and you must comply with each change."
Heavy Regulatory Burden on Restaurant Industry
Low
Explanation:
- The FDD acknowledges the significant regulatory burden on the restaurant industry, including federal, state, and local laws related to location, construction, health, safety, and advertising.
- These regulations can be complex and costly to comply with, posing a challenge for new franchisees.
Potential Mitigations:
- Thoroughly research the specific regulations applicable to your chosen location and factor in the associated compliance costs.
- Consult with legal and regulatory experts to ensure full compliance with all applicable laws and regulations.
- Inquire about the franchisor's resources and support for navigating regulatory requirements.
FDD Citations:
- Item 1: "The restaurant industry is heavily regulated."
- Item 1: Details the various regulations impacting restaurants.
Disclosure & Representation Risks
6 risks identified
2
3
1
Inconsistent FDD Information
High
Explanation:
- The FDD contains conflicting copyright years (2022, 2024) across different sections and exhibits, suggesting potential outdated or inaccurate information.
- This inconsistency raises concerns about the overall accuracy and reliability of the FDD's content, which could lead to misunderstandings and disputes.
Potential Mitigations:
- Carefully review the entire FDD for any other inconsistencies or discrepancies.
- Request clarification from the franchisor regarding the conflicting dates and ensure the provided FDD is the most up-to-date version.
- Consult with a legal professional to assess the potential impact of these inconsistencies on the franchise agreement.
FDD Citations:
- Item 23: "© 2024 16 Handles Franchising, LLC"
- Exhibit B: "© 2022 16 Handles Franchising, LLC 2022 Franchise Disclosure Document"
- Exhibit B (Franchise Agreement): "© 2024 16 Handles Franchising LLC Franchise Agreement"
Franchisor's Limited Operating History
Medium
Explanation:
- 16 Handles was founded in 2011, which is a relatively short operating history in the franchise industry.
- This limited track record may indicate a lack of established systems, brand recognition, and long-term financial stability compared to more established franchise brands.
Potential Mitigations:
- Thoroughly research the franchisor's performance and growth trajectory since its inception.
- Speak with existing franchisees to understand their experiences and assess the franchisor's support and stability.
- Analyze the franchisor's financial statements to evaluate their financial health and sustainability.
FDD Citations:
- Franchise Context: "Founded: 2011"
Lack of Specific Financial Performance Representations
Medium
Explanation:
- The provided FDD excerpts do not include Item 19, which typically contains financial performance representations (FPRs).
- The absence of FPRs makes it difficult to assess the potential profitability and financial viability of the franchise opportunity.
Potential Mitigations:
- Request the complete FDD from the franchisor, specifically focusing on Item 19.
- If Item 19 is absent, inquire about the reasons for not providing FPRs and request alternative financial information, such as average unit volumes or cost breakdowns.
- Conduct independent market research and financial projections to estimate potential revenue and expenses.
FDD Citations:
- N/A (Item 19 not provided)
Reliance on Third-Party Website Disclaimer
Medium
Explanation:
- The FDD includes disclaimers from franchimp.com, indicating that the document was downloaded from this third-party website.
- This raises concerns about the document's official status and potential alterations during the download process.
- The disclaimer itself limits the website's liability for the information's accuracy, potentially impacting the enforceability of the FDD's content.
Potential Mitigations:
- Obtain the FDD directly from the franchisor to ensure its authenticity and avoid potential issues related to third-party sources.
- Verify the document's integrity by comparing it with other official sources or requesting confirmation from the franchisor.
- Consult with legal counsel to assess the potential implications of the disclaimer on the FDD's legal validity.
FDD Citations:
- Multiple instances throughout the provided excerpts: "This document was downloaded from franchimp.com..."
Potential for Misinterpretation of Receipt Acknowledgement
Low
Explanation:
- Item 23 mentions two copies of the receipt acknowledgment, one to be returned and one to be kept for records. While seemingly straightforward, there's a slight chance of confusion leading to improper handling of the document.
Potential Mitigations:
- Carefully read and follow the instructions in Item 23 regarding the receipt acknowledgment.
- If any confusion arises, contact the franchisor directly for clarification.
FDD Citations:
- Item 23: "Two copies of an acknowledgment of your receipt..."
Limited Disclosure on Franchise Agreement Specifics
High
Explanation:
- The provided FDD excerpt only includes the Table of Contents of the Franchise Agreement (Exhibit B). The absence of the actual agreement content prevents a thorough assessment of key terms and conditions, including obligations, restrictions, termination clauses, and dispute resolution mechanisms.
- Without access to the full agreement, potential franchisees cannot fully understand their rights and responsibilities, increasing the risk of unfavorable contractual terms.
Potential Mitigations:
- Request the complete Franchise Agreement from the franchisor and carefully review all provisions before signing.
- Consult with a franchise attorney to analyze the agreement and identify any potentially problematic clauses.
- Compare the agreement's terms with industry standards and other franchise agreements to ensure fairness and reasonableness.
FDD Citations:
- Exhibit B: "16 HANDLES FRANCHISING LLC FRANCHISE AGREEMENT" (Table of Contents only)
Financial & Fee Risks
2 risks identified
2
Franchisor Financial Instability (Illinois)
High
Explanation:
- Item 3 reveals that the Illinois Attorney General imposed a requirement to defer initial franchise/development fees due to the franchisor's financial condition. This indicates potential financial instability, raising concerns about the franchisor's ability to fulfill its obligations and support franchisees.
- This mandated deferral suggests a history of financial difficulties that could impact the franchisor's ability to provide ongoing support, marketing, and other essential services.
Potential Mitigations:
- Request audited financial statements for the past three years to assess the franchisor's current financial health and trends.
- Inquire about the specific reasons for the Attorney General's intervention and the franchisor's plan to address the underlying financial issues.
- Consult with a financial advisor to evaluate the franchisor's financial stability and the potential risks to your investment.
- Negotiate stronger guarantees or assurances in the franchise agreement regarding the franchisor's performance and support.
FDD Citations:
- Item 3: "This financial assurance requirements was imposed by the Office of the Illinois Attorney General due to Franchisor’s financial condition."
Franchisor Financial Instability (Maryland)
High
Explanation:
- The Maryland Rider indicates that the Maryland Securities Commissioner has also required financial assurances, including deferral of initial fees and payments, due to the franchisor's financial condition. This reinforces the concerns raised in Item 3 regarding the franchisor's financial stability.
- The requirement for deferral in multiple states suggests a broader financial issue that could significantly impact franchisees' ability to launch and operate their businesses successfully.
Potential Mitigations:
- Request detailed information about the specific financial assurances required by the Maryland Securities Commissioner and the reasons behind them.
- Compare the financial requirements imposed by Illinois and Maryland to understand the scope of the franchisor's financial challenges.
- Seek legal counsel specializing in franchising to assess the risks associated with the franchisor's financial situation and negotiate appropriate protections in the franchise agreement.
- Consider alternative franchise opportunities with franchisors demonstrating stronger financial health.
FDD Citations:
- Maryland Rider: "Based upon the franchisor’s financial condition, the Maryland Securities Commissioner has required a financial assurance. Therefore, all initial fees and payments owed by franchisees shall be deferred until the franchisor completes its pre-opening obligations under the franchise agreement."
Legal & Contract Risks
7 risks identified
3
3
1
Washington Franchise Investment Protection Act (FIPA) Superseding Franchise Agreement
High
Explanation:
- The FDD states that the Washington FIPA (RCW 19.100.180) and court decisions may supersede the franchise agreement, particularly regarding termination and renewal. This creates uncertainty and potential conflict between the agreement and state law, potentially favoring the franchisee in disputes.
Potential Mitigations:
- Carefully review RCW 19.100.180 to understand the specific provisions that may supersede the franchise agreement.
- Consult with a franchise attorney specializing in Washington law to assess the potential impact of FIPA on the franchise relationship.
- Negotiate specific terms in the franchise agreement to address potential conflicts with FIPA, if possible.
FDD Citations:
- Item 17: "RCW 19.100.180 may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise."
- Item 17: "There may also be court decisions which may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise."
Restrictions on Non-Compete Clauses for Employees and Independent Contractors in Washington
High
Explanation:
- The FDD highlights Washington's RCW 49.62.020 and 49.62.030, which void non-compete agreements for employees earning less than $100,000 (adjusted for inflation) and independent contractors earning less than $250,000 (adjusted for inflation), respectively. This significantly limits the franchisor's ability to protect its intellectual property and business model by restricting post-termination competition from employees and contractors.
Potential Mitigations:
- Understand the implications of these limitations on your ability to protect your business in Washington.
- Consult with legal counsel to explore alternative strategies for protecting confidential information and trade secrets, such as robust confidentiality agreements and non-solicitation clauses.
- Consider adjusting compensation structures for key employees and independent contractors to meet the earnings thresholds for enforceable non-compete agreements.
FDD Citations:
- Item 17: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable against an employee..."
- Item 17: "In addition, a noncompetition covenant is void and unenforceable against an independent contractor..."
Restrictions on Employee Solicitation and Hiring in Washington
High
Explanation:
- RCW 49.62.060 prohibits franchisors from restricting franchisees from soliciting or hiring employees of other franchisees or the franchisor itself. This could lead to increased employee turnover and potential loss of trained personnel to competitors within the franchise system.
Potential Mitigations:
- Develop strong employee retention programs, including competitive compensation and benefits packages, to minimize the incentive for employees to leave.
- Foster a positive work environment and company culture to improve employee loyalty.
- Consult with legal counsel to ensure any non-solicitation agreements comply with Washington law.
FDD Citations:
- Item 17: "RCW 49.62.060 prohibits a franchisor from restricting, restraining, or prohibiting a franchisee from (i) soliciting or hiring any employee of a franchisee of the same franchisor or (ii) soliciting or hiring any employee of the franchisor."
California Franchise Regulations - Waiver Prohibition and Reliance Disclaimer
Medium
Explanation:
- The California Rider prohibits waivers of claims under state franchise law and disclaimers of reliance on franchisor statements. This strengthens franchisee protections and could increase the franchisor's liability in disputes.
Potential Mitigations:
- Ensure all disclosures and representations to prospective franchisees in California are accurate and comply with state franchise law.
- Consult with legal counsel specializing in California franchise law to review all franchise agreements and related documents.
FDD Citations:
- California Rider, Section 2: "No statement, questionnaire, or acknowledgment...shall have the effect of (i) waiving any claims under any applicable state franchise law...or (ii) disclaiming reliance on any statement made by any franchisor..."
California Franchise Regulations - Deferred Fee Collection
Medium
Explanation:
- The California Rider requires deferral of initial fees until the franchisee is open for business. This impacts the franchisor's cash flow and could delay franchise development.
Potential Mitigations:
- Adjust financial projections to account for the delayed fee collection in California.
- Explore alternative financing options to bridge the cash flow gap.
FDD Citations:
- California Rider, Section 3: "The Department of Financial Protection and Innovation requires that the franchisor defer the collection of all initial fees...until the franchisor has completed all its pre-opening obligations and the franchisee is open for business."
Transfer Fee Limitations in Washington
Medium
Explanation:
- The FDD mentions that transfer fees are limited to the franchisor's reasonable estimated or actual costs. This restricts the franchisor's ability to generate revenue from franchise resales.
Potential Mitigations:
- Maintain detailed records of all costs associated with franchise transfers to justify the fees charged.
- Consult with legal counsel to ensure compliance with Washington law regarding transfer fees.
FDD Citations:
- Item 17: "Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or actual costs in effecting a transfer."
Choice of Law - Washington
Low
Explanation:
- The FDD specifies Washington law as governing in case of conflict of laws. This could be disadvantageous for franchisees located outside of Washington, as they would be subject to a jurisdiction potentially unfamiliar to them.
Potential Mitigations:
- If located outside Washington, consult with an attorney in your jurisdiction to understand the implications of Washington law governing the franchise agreement.
FDD Citations:
- Item 17: "In the event of a conflict of laws, the provisions of the Washington Franchise Investment Protection Act, Chapter 19.100 RCW will prevail."
Territory & Competition Risks
6 risks identified
2
3
1
Limited Operating History of Franchisor
High
Explanation:
- The current franchisor, 16 HANDLES FRANCHISING LLC, was formed very recently (June 14, 2022) and only began offering franchises on September 12, 2022.
- This limited operating history as a franchisor increases the risk of unforeseen challenges and potentially inadequate support systems for franchisees.
- While the predecessor company has a longer history, the new entity's lack of experience in franchising poses a significant risk.
Potential Mitigations:
- Thoroughly research the management team's experience and background, particularly in franchising and the food and beverage industry.
- Carefully review the FDD, especially Item 2 (Business Experience) and Item 11 (Franchisor's Financial Statements), to assess the financial stability and resources of the franchisor.
- Speak with existing franchisees (those transferred from the predecessor) about their experiences and the transition to the new franchisor.
FDD Citations:
- Item 1: "We are a Delaware limited liability company formed on June 14, 2022. We began offering franchises on September 12, 2022."
Competition from Existing Affiliated Stores
Medium
Explanation:
- The franchisor's affiliates own and operate seven 16 Handles stores, all located in New York City. If you are also located in or near New York City, this creates direct competition with established stores owned by the franchisor's affiliates.
- This could impact market share and profitability, especially for franchisees in close proximity to these affiliate-owned locations.
Potential Mitigations:
- Carefully evaluate the market demographics and competition in your proposed territory, paying close attention to the proximity of existing affiliate-owned stores.
- Discuss with the franchisor their plans for future corporate-owned store expansion and how it might impact your territory.
- Negotiate for protected territory rights in your Franchise Agreement to minimize direct competition from affiliate-owned stores.
FDD Citations:
- Item 1: Lists seven affiliate-owned stores in New York, NY.
Restrictions on Sales and Operations
Medium
Explanation:
- Franchisees are restricted from selling products through alternative distribution channels without prior written consent, limiting potential revenue streams.
- Franchisees must adhere to franchisor-mandated operating hours and methods, potentially impacting flexibility and adaptability to local market conditions.
Potential Mitigations:
- Clearly understand the restrictions on sales and operations outlined in the Franchise Agreement.
- Discuss with the franchisor the rationale behind these restrictions and the potential for flexibility in specific circumstances.
- Evaluate whether these restrictions align with your business goals and entrepreneurial vision.
FDD Citations:
- Introductory text before Item 1: "You may only sell to retail customers...except with our prior written consent...You must keep the Franchised Store open...as we may specify...You must operate the Franchised Store in strict conformity..."
Dependence on the Franchisor's System
Medium
Explanation:
- Franchisees are required to operate strictly within the franchisor's system, including using proprietary recipes, equipment, and marketing programs.
- This dependence limits flexibility and innovation, and any changes to the system mandated by the franchisor could significantly impact operations and costs.
Potential Mitigations:
- Thoroughly review the franchisor's operating manual and understand all requirements and restrictions.
- Inquire about the franchisor's process for implementing system changes and the potential impact on franchisees.
- Assess the franchisor's track record of innovation and adaptability to market trends.
FDD Citations:
- Item 1: "16 Handles Stores are characterized by our System...We may periodically change and improve the System and you must comply with each change."
- Introductory text: "You must operate the Franchised Store in strict conformity with the methods, standards, and specifications as we prescribe in the Manual or in writing."
Heavy Regulation of the Restaurant Industry
Low
Explanation:
- The restaurant industry is subject to numerous regulations related to food safety, hygiene, labor laws, and licensing, which can be complex and costly to comply with.
Potential Mitigations:
- Research and understand the specific regulations applicable to your location.
- Consult with legal and regulatory experts to ensure compliance.
- Budget for the costs associated with regulatory compliance.
FDD Citations:
- Introductory text before Item 1: "The restaurant industry is heavily regulated"
Potential for Encroachment from Other Franchisees
High
Explanation:
- The FDD mentions the offering of Area Development Agreements, which allow developers to open multiple stores within a specific geographic area.
- This creates the potential for market saturation and increased competition from other franchisees within the same brand, especially if the franchisor prioritizes rapid expansion over strategic placement of franchise locations.
Potential Mitigations:
- Carefully review the FDD, specifically any information related to territory protection and the franchisor's development plans.
- Negotiate for as much territorial exclusivity as possible in your Franchise Agreement.
- Inquire about the franchisor's criteria for awarding new franchises and their strategy for managing competition between franchisees.
FDD Citations:
- Item 1: "We also may offer an area development agreement...which grants the right to establish and operate a specified number of Stores in a specified geographical area."
Regulatory & Compliance Risks
3 risks identified
1
2
Evolving Regulatory Landscape for Food Service
Medium
Explanation:
- The FDD mentions a "wide variety of Federal, state and local laws, rules and regulations" impacting restaurant operations, which are subject to change and vary by location. This creates uncertainty and potential for increased compliance costs over time.
- Changes in food safety regulations, labeling requirements, or health codes could necessitate costly equipment upgrades, staff retraining, or menu adjustments.
Potential Mitigations:
- Engage legal counsel specializing in food service regulations in your target location to ensure full compliance with current and anticipated regulations.
- Budget for potential regulatory changes and compliance costs, including equipment upgrades, staff training, and legal consultation.
- Join industry associations (e.g., National Restaurant Association) to stay informed about regulatory updates and best practices.
FDD Citations:
- Item 1: "Industry-Specific Regulations" section discusses the various federal, state, and local regulations impacting restaurant operations.
Health and Safety Compliance
High
Explanation:
- Foodborne illnesses or other health and safety violations can result in severe consequences, including legal action, reputational damage, and temporary or permanent closure.
- The FDD highlights regulations related to "employee health and safety," "health, safety and welfare of customers," and "storage, handling, cooking and preparation of food," indicating a high level of scrutiny in this area.
Potential Mitigations:
- Implement rigorous food safety training programs for all employees, covering proper handling, storage, and preparation techniques.
- Establish and maintain a comprehensive food safety management system (e.g., HACCP) to identify and control potential hazards.
- Conduct regular internal audits and inspections to ensure compliance with all health and safety regulations.
FDD Citations:
- Item 1: "Industry-Specific Regulations" section mentions regulations pertaining to employee and customer health and safety, food handling, and sanitation.
Accessibility Compliance (ADA)
Medium
Explanation:
- The FDD mentions the Americans with Disabilities Act (ADA) as applicable to restaurants. Non-compliance can lead to lawsuits, fines, and reputational damage.
- Ensuring accessibility for all customers requires careful planning and potential modifications to the physical premises.
Potential Mitigations:
- Consult with an ADA specialist to conduct a thorough assessment of the premises and identify any necessary modifications.
- Develop and implement policies and procedures to ensure equal access for all customers, including those with disabilities.
- Train staff on ADA requirements and best practices for interacting with customers with disabilities.
FDD Citations:
- Item 1: "Industry-Specific Regulations" section specifically names the Americans With Disabilities Act as applicable to restaurants.
Franchisor Support Risks
6 risks identified
1
3
2
Limited Initial Training Duration and Potential Inconsistency for Multiple Units
Medium
Explanation:
- The FDD mentions initial training for the franchisee and up to two additional trainees, but doesn't specify the duration. A short training period may be insufficient to cover all aspects of running a 16 Handles franchise, especially given the complexities of food service operations, marketing, and management.
- While pre-opening and opening assistance is provided for the first store, it's at the franchisor's discretion for subsequent stores. This inconsistency could lead to challenges in maintaining quality and operational standards across multiple units.
Potential Mitigations:
- Request a detailed training schedule and curriculum from the franchisor to assess its comprehensiveness. Inquire about opportunities for ongoing training and support beyond the initial program.
- Negotiate for guaranteed pre-opening and opening assistance for all units, not just the first, to ensure consistent support and maintain brand standards.
- Seek out existing franchisees and inquire about their training experiences and the level of ongoing support received from the franchisor.
FDD Citations:
- Item 11: "We will pay for the cost of instruction and materials for you and up to two additional trainees..."
- Item 11: "We will provide on-site pre-opening and opening supervision and assistance for up to four days... If you are opening your second or later Franchised Store, we reserve the right to provide this assistance to you at our discretion only."
Dependence on Franchisor-Approved Design and Construction Process
Medium
Explanation:
- The franchisee is required to use either the franchisor's designated design/architecture firm or obtain approval for their own choice. This limits flexibility and potentially increases costs.
- While the franchisor provides prototype plans, adapting them to the specific site requires approval, creating potential delays and disagreements.
Potential Mitigations:
- Carefully review the franchisor's design and construction requirements, including associated costs and timelines. Compare with independent options to assess potential cost differences and restrictions.
- Clarify the approval process for site adaptation and construction. Establish clear communication channels with the franchisor to minimize potential delays and disputes.
- Consult with experienced franchise attorneys and construction professionals to understand the implications of the franchisor's requirements and protect your interests.
FDD Citations:
- Item 11: "You must hire your own architect (which must be approved by us) or employ the design firm and/or architecture firm designated by us..."
- Item 11: "...adapt the plans to your site (with our approval...)"
Pre-Opening Approval Contingency
Low
Explanation:
- The franchisor's written approval is required before the store can open. This creates a dependency and potential delays if the approval process is not efficient or if there are disagreements.
Potential Mitigations:
- Clearly understand the franchisor's criteria for store opening approval. Establish a timeline for the approval process and include it in your business plan.
- Maintain open communication with the franchisor throughout the build-out and pre-opening phases to address any potential issues proactively.
- Document all interactions and agreements with the franchisor regarding the approval process.
FDD Citations:
- Item 11: "We have the right to inspect and approve the Franchised Store for opening before the initial opening. You may not start operation of your Franchised Store until receiving our approval in writing to do so."
Limited Information on Ongoing Support
Medium
Explanation:
- The FDD primarily focuses on initial training and pre-opening support. There's limited detail about the type and extent of ongoing support provided after the store opens, such as marketing assistance, operational guidance, and technology updates.
Potential Mitigations:
- Request specific information from the franchisor about the ongoing support provided, including frequency, methods (e.g., on-site visits, phone calls, online resources), and areas covered.
- Speak with existing franchisees to understand the level and quality of ongoing support they receive.
- Negotiate for specific ongoing support services to be included in the franchise agreement.
FDD Citations:
- Item 11: Lacks specific details on ongoing support beyond initial training and opening assistance.
Potential for Conflicts of Interest (Indiana)
Low
Explanation:
- The amendment to Item 8 regarding Indiana Code Section 23-2-2.7-1(4) suggests a potential, albeit mitigated, risk of conflicts of interest. While the franchisor states they will account for and transmit benefits received from franchisee transactions with third parties, the nature and extent of these benefits aren't fully clarified.
Potential Mitigations:
- If operating in Indiana, carefully review the franchise agreement and related documents for any clauses related to third-party transactions and potential benefits received by the franchisor.
- Seek legal counsel to understand the implications of the Indiana Code cited and ensure your interests are protected.
- Request transparency from the franchisor regarding any benefits received from your transactions with third-party vendors.
FDD Citations:
- Item 8 Amendment: "Under Indiana Code Section 23-2-2.7-1(4), the franchisor will not obtain money, goods, services, or any other benefit from any other person with whom the franchisee does business..."
Limited Indemnification for Franchisor-Mandated Procedures/Products (Indiana)
High
Explanation:
- The amendment to Items 6 and 9 regarding indemnification in Indiana presents a significant risk. While the franchisee is protected from liability if following mandated procedures/products, the lack of indemnification for other situations leaves the franchisee potentially vulnerable. This could lead to significant financial losses if issues arise from franchisor-mandated practices.
Potential Mitigations:
- If operating in Indiana, carefully review the franchise agreement and related documents to fully understand the limitations of indemnification.
- Seek legal counsel specializing in franchising to assess the potential risks and negotiate stronger indemnification clauses where possible.
- Ensure meticulous adherence to all franchisor-mandated procedures and product usage guidelines to minimize potential liability.
FDD Citations:
- Items 6 and 9 Amendment: "The franchisee will not be required to indemnify franchisor for any liability imposed upon franchisor as a result of franchisee’s reliance upon or use of procedures or products that were required by franchisor, if the procedures or products were utilized by franchisee in the manner required by franchisor."
Exit & Transfer Risks
6 risks identified
2
3
1
Washington Franchise Investment Protection Act Superseding Franchise Agreement
High
Explanation:
- The Washington Franchise Investment Protection Act (WFIPA) may supersede the franchise agreement in areas of termination and renewal, potentially giving franchisees in Washington more rights than outlined in the agreement.
- This could lead to unexpected outcomes in disputes regarding termination or renewal, making it harder for the franchisor to enforce the terms of the agreement.
Potential Mitigations:
- Carefully review the WFIPA and ensure the franchise agreement complies with its provisions, particularly regarding termination and renewal.
- Consult with legal counsel specializing in franchise law in Washington state to ensure compliance and understand potential implications.
- Be prepared for potential challenges to termination or non-renewal based on the WFIPA and develop strategies to address such challenges.
FDD Citations:
- Item 17: "RCW 19.100.180 may supersede the franchise agreement in your relationship with the franchisor including the areas of termination and renewal of your franchise."
Venue Restrictions for Disputes in Washington
Medium
Explanation:
- For franchises purchased in Washington, arbitration or mediation must be held in Washington or a mutually agreed-upon location, potentially increasing costs and logistical challenges for franchisees outside of Washington.
Potential Mitigations:
- Factor in potential travel and logistical costs associated with dispute resolution in Washington when evaluating the franchise opportunity.
- Negotiate clear and mutually agreeable terms for dispute resolution venues in the franchise agreement.
FDD Citations:
- Item 17: "In any arbitration or mediation involving a franchise purchased in Washington, the arbitration or mediation site will be either in the state of Washington, or in a place mutually agreed upon at the time of the arbitration or mediation…"
Limitations on Non-Compete Agreements in Washington
Medium
Explanation:
- Non-compete covenants are void and unenforceable against employees and independent contractors of franchisees in Washington unless their earnings exceed certain thresholds, limiting the franchisor's ability to protect its brand and trade secrets.
Potential Mitigations:
- Structure compensation for employees and independent contractors in Washington to potentially meet the earnings thresholds for enforceable non-compete agreements.
- Explore alternative strategies for protecting confidential information and trade secrets, such as robust confidentiality agreements and training programs.
- Consult with legal counsel in Washington to ensure compliance with state-specific regulations regarding non-compete agreements.
FDD Citations:
- Item 17: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable against an employee…"
Restrictions on Employee Solicitation in Washington
Medium
Explanation:
- The franchisor is prohibited from restricting a franchisee from soliciting or hiring employees of other franchisees or the franchisor in Washington, potentially increasing employee turnover and competition between franchisees.
Potential Mitigations:
- Develop strong employee retention programs and offer competitive compensation and benefits to reduce turnover.
- Foster a positive and collaborative environment among franchisees to minimize potential conflicts related to employee recruitment.
FDD Citations:
- Item 17: "RCW 49.62.060 prohibits a franchisor from restricting, restraining, or prohibiting a franchisee from (i) soliciting or hiring any employee of a franchisee of the same franchisor or (ii) soliciting or hiring any employee of the franchisor."
Waiver of Rights Limitations in Washington
Low
Explanation:
- A franchisee's waiver of rights may not include rights under the WFIPA except in specific circumstances, potentially limiting the franchisor's ability to resolve disputes through negotiated settlements.
Potential Mitigations:
- Ensure all settlement agreements are carefully reviewed by legal counsel specializing in Washington franchise law to ensure compliance with the WFIPA.
FDD Citations:
- Item 17: "A release or waiver of rights executed by a franchisee may not include rights under the Washington Franchise Investment Protection Act…"
Deferred Initial Fees in California
High
Explanation:
- The franchisor must defer the collection of all initial fees from California franchisees until the franchisee is open for business, potentially impacting the franchisor's cash flow and delaying the start of revenue generation for the franchisee.
- This delay could create financial strain for both the franchisor and the franchisee, especially if unforeseen delays occur in the opening process.
Potential Mitigations:
- Franchisor: Secure adequate financing to cover operating expenses during the period of deferred fee collection.
- Franchisee: Develop a detailed financial plan that accounts for the deferred fee payment and potential delays in opening.
- Both parties: Establish clear timelines and communication channels to ensure a smooth and efficient opening process.
FDD Citations:
- California Rider: "The Department of Financial Protection and Innovation requires that the franchisor defer the collection of all initial fees from California franchisees until the franchisor has completed all its pre-opening obligations and the franchisee is open for business."
Operational & Brand Risks
6 risks identified
2
3
1
Risk of Non-Compliance with Indiana Code 23-2-2.7-1(4)
High
Explanation:
- Item 8 highlights a specific requirement under Indiana law regarding the franchisor not receiving undisclosed benefits from franchisee transactions. Failure to comply with this law could lead to significant legal and financial penalties for both the franchisor and the franchisee.
- This risk is particularly relevant for franchisees operating in Indiana.
Potential Mitigations:
- Thoroughly review all agreements and transactions to ensure compliance with Indiana Code 23-2-2.7-1(4).
- Consult with legal counsel specializing in Indiana franchise law to ensure all business practices adhere to the regulations.
- Maintain transparent records of all transactions and benefits received to demonstrate compliance.
FDD Citations:
- Item 8: "Under Indiana Code Section 23-2-2.7-1(4), the franchisor will not obtain money, goods, services, or any other benefit..."
Risk of Inadequate Training and Support for Multi-Unit Franchisees
Medium
Explanation:
- While initial training is provided, the FDD indicates that pre-opening and opening assistance for second or later stores is at the franchisor's discretion. This could leave multi-unit franchisees with less support than needed for successful expansion.
Potential Mitigations:
- Negotiate a specific agreement for pre-opening and opening support for subsequent stores before signing the franchise agreement.
- Develop internal training and operational procedures to supplement the franchisor's support.
- Network with other multi-unit franchisees to share best practices and support resources.
FDD Citations:
- Item 11: "If you are opening your second or later Franchised Store, we reserve the right to provide this assistance to you at our discretion only."
Risk of Construction and Design Delays or Disputes
Medium
Explanation:
- The FDD outlines specific requirements for store design and construction, including franchisor approval of architects and plans. This process could lead to delays or disputes if there are disagreements over design choices or compliance with local regulations.
Potential Mitigations:
- Engage an experienced architect familiar with 16 Handles' requirements and local building codes early in the process.
- Maintain clear communication with the franchisor throughout the design and construction phases.
- Secure written approvals for all design plans and changes before commencing construction.
FDD Citations:
- Item 11: "We will provide you or the approved design firm and/or architect with our prototype plans..."
- Item 11: "You must hire your own architect (which must be approved by us)..."
Risk of Delayed Store Opening Due to Franchisor Approval
Medium
Explanation:
- The franchisor has the right to inspect and approve the store before opening. This could delay the launch of the business if the franchisor's approval is not obtained promptly.
Potential Mitigations:
- Work closely with the franchisor throughout the construction and setup process to ensure compliance with their standards.
- Schedule the franchisor's inspection well in advance of the planned opening date.
- Develop a contingency plan in case of delays in obtaining franchisor approval.
FDD Citations:
- Item 11: "We have the right to inspect and approve the Franchised Store for opening..."
Risk Related to Indemnification for Required Procedures and Products
Low
Explanation:
- The amendment to Items 6 and 9 clarifies that the franchisee will not be required to indemnify the franchisor for liabilities arising from the use of franchisor-required procedures or products. While this reduces risk for the franchisee, it's important to understand the specific limitations and scope of this provision.
Potential Mitigations:
- Carefully review the franchise agreement to fully understand the indemnification clause and its exceptions.
- Consult with legal counsel to clarify any ambiguities regarding liability for required procedures and products.
FDD Citations:
- Items 6 and 9: "The franchisee will not be required to indemnify franchisor for any liability imposed upon franchisor as a result of franchisee’s reliance upon or use of procedures or products that were required by franchisor..."
Brand Reputation Risk Due to Actions of Other Franchisees
High
Explanation:
- As with any franchise system, the actions of other franchisees can impact the overall brand reputation. Negative publicity or poor quality at one location can affect customer perception of the entire brand, including individual franchisees.
Potential Mitigations:
- Actively participate in franchisee associations and communication channels to stay informed about brand standards and best practices.
- Maintain high standards of quality and customer service at your own location to contribute positively to the brand image.
- Communicate any concerns about other franchisees' performance to the franchisor.
FDD Citations:
- While not explicitly mentioned, this is an inherent risk in any franchise system.
Performance & ROI Risks
3 risks identified
2
1
Wide Range of Gross Revenue Performance
High
Explanation:
- Item 19 reveals a substantial disparity in gross revenue between the highest and lowest performing stores. The highest-earning store generated $1,886,771, while the lowest earned only $363,989. This wide range indicates significant variability in potential profitability and highlights the risk that a new franchisee may not achieve high revenue levels.
- The data also shows a significant portion of Standard Stores did not meet or exceed the average revenue. Only 10 out of 26 Standard Stores met or exceeded the average revenue, indicating that a substantial number of franchisees are operating below average performance.
Potential Mitigations:
- Carefully analyze the reasons behind the performance disparity. Request detailed information from the franchisor about the best and worst-performing stores, including their location demographics, marketing strategies, management practices, and operational efficiency. Identify success factors and potential pitfalls.
- Conduct thorough due diligence on the proposed location. Analyze local market demographics, competition, and consumer preferences to assess the potential for generating strong revenue. Consider factors like foot traffic, visibility, accessibility, and proximity to target customer segments.
- Develop a realistic business plan that accounts for potential revenue variability. Project different revenue scenarios, including a worst-case scenario based on the lowest-performing stores. Ensure the business model can sustain operations even with lower-than-average revenue.
FDD Citations:
- Item 19, Chart A: "Highest Earning Store $1,886,771 Lowest Earning Store $363,989"
- Item 19, Chart B: "All Franchised Outlets $715,589 26 10 13" (showing only 10 of 26 met/exceeded average)
Limited Sample Size and Exclusions
Medium
Explanation:
- The financial performance representation (FPR) is based on a relatively small sample size of 28 franchised stores. This limited sample may not accurately reflect the potential performance of a new franchise location.
- The FDD excludes one franchise location with no revenue due to landlord closure. While understandable, this exclusion limits the data's comprehensiveness and potentially skews the overall performance picture.
- The FDD categorizes some stores as "Outlier Stores" due to seasonal closure or recent opening. While this categorization is helpful, it further reduces the number of "Standard Stores" used for comparison and analysis, potentially impacting the reliability of the average revenue figures.
Potential Mitigations:
- Request additional data from the franchisor, including historical performance data from previous years and information on any closed or terminated franchises. A larger dataset can provide a more robust understanding of potential performance trends.
- Seek information about the excluded franchise location. Understand the circumstances of the landlord closure and assess the potential for similar issues at other locations.
- Compare the FPR data with industry benchmarks and competitor performance. This can provide a broader context for evaluating the potential profitability of a 16 Handles franchise.
FDD Citations:
- Item 19: "As of December 31, 2023, there were a total of 29 Stores..."
- Item 19, Footnote 1: "1 Franchised Store was excluded..."
- Item 19: "...2 Franchised Stores that were not open for during the entire Measurement Period due to 1 seasonal closure and 1 Franchised Store that opened during 2023..."
Gross Revenue Figures Only - No Net Profit Information
High
Explanation:
- Item 19 provides only gross revenue figures and does not disclose any information about net profits. Gross revenue is not a reliable indicator of profitability, as it does not account for operating expenses, cost of goods sold (COGS), royalties, marketing fees, and other costs.
- Without net profit data, it is difficult to assess the true earning potential of a 16 Handles franchise and determine the likely return on investment.
Potential Mitigations:
- Request detailed information from the franchisor about typical operating expenses, COGS, royalties, marketing fees, and other costs associated with running a franchise. Use this information to estimate potential net profit margins.
- Consult with experienced franchise accountants and financial advisors to develop a comprehensive financial model that projects both revenue and expenses. This will provide a more accurate assessment of potential profitability.
- Interview existing franchisees to gain insights into their actual net profit margins and operating costs. This can provide valuable real-world data to supplement the limited information in the FDD.
FDD Citations:
- Item 19, General Note 1: "The financial performance figures do not reflect any cost of sales, operating expenses, or other costs or expenses that must be deducted from net revenue or net sales figures to obtain your net income or profit."
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FDD Year: 2024
Uploaded: 8/25/2025
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