Barberitos
Food and Beverage
Founded 200042 locationsCompany Profile
Year Founded:2000
Barberitos Franchise Cost
| Franchise Fee: | $35,000Key Metric |
| Total Investment: | $521,000 - $830,000Key Metric |
| Liquid Capital: | $120,000 |
| Royalty Fee: | 6% of gross sales |
| Marketing Fee: | 3% of gross sales |
Quick ROI Calculator
Based on Barberitos's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:42
Scale relative to 1,000 locations
Franchised Units:42
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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.
15
High Risk
Critical items
38% of total
21
Medium Risk
Monitor closely
54% of total
3
Low Risk
Manageable items
8% of total
39
Total Items
Factors analyzed
10 categories
6.54
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
6 risks identified
2
3
1
New Franchisor Entity
High
Explanation:
- The franchisor, Barberitos Franchising Co., LLC, is a very new entity, formed on February 9, 2022. This lack of operating history as a franchisor presents a significant risk. There's limited demonstrable experience in managing a franchise system, recruiting, training, and supporting franchisees.
- Decisions and strategies may be untested, leading to potential inefficiencies or ineffective support for franchisees.
Potential Mitigations:
- Carefully review the management team's experience in franchising and the food and beverage industry (even if with other brands). Look for evidence of successful franchise management elsewhere.
- Seek legal counsel specializing in franchising to thoroughly review the FDD and negotiate favorable terms that address the franchisor's limited history.
- Contact existing franchisees and inquire about their experiences with the franchisor's support and training programs.
FDD Citations:
- Item 1: "We are a Delaware limited liability company formed on February 9, 2022..."
Parent Company Guarantee Reliance
High
Explanation:
- The franchisor relies on a guarantee from its parent company, Barberitos, LLC, also a newly formed entity (February 9, 2022). This creates a dependence on the parent company's financial stability and willingness to honor the guarantee.
- If the parent company experiences financial difficulties, its ability to support the franchisor and fulfill its obligations to franchisees could be compromised.
Potential Mitigations:
- Thoroughly analyze the parent company's audited financial statements (Item 21, Exhibit F) to assess its financial health and long-term viability.
- Consult with a financial advisor to evaluate the strength of the guarantee and the potential risks associated with relying on it.
- Seek legal counsel to review the guarantee agreement and ensure it provides adequate protection for franchisees.
FDD Citations:
- Item 21: "Our parent guarantees our performance under the franchise agreement."
- Item 1: "We have a parent company, Barberitos, LLC, a Delaware limited liability company formed on February 9, 2022..."
Decline in Company-Owned Stores
Medium
Explanation:
- Item 20, Table 4 shows all company-owned stores were sold to franchisees in 2024. While this could be a strategic shift, it also raises concerns about the parent company's commitment to the brand's operational model and its potential impact on support and training for franchisees.
Potential Mitigations:
- Inquire about the reasons for the divestiture of company-owned stores and the franchisor's plans for ongoing support and training for franchisees.
- Assess the experience and capabilities of the franchisees who acquired the former company-owned stores.
FDD Citations:
- Item 20, Table 4: "Outlets Sold to Franchisee: 4 in 2024"
Net Decrease in Total Outlets
Medium
Explanation:
- The total number of outlets has decreased over the past three years (from 47 to 42). This decline could indicate challenges in maintaining or growing the brand's presence, potentially impacting brand recognition and overall system strength.
Potential Mitigations:
- Investigate the reasons for the net decrease in outlets (terminations, closures, etc.) and the franchisor's plans for future growth and expansion.
- Analyze the performance of existing franchisees to assess the brand's viability in different markets.
FDD Citations:
- Item 20, Table 1: Shows a net decrease in total outlets from 47 in 2022 to 42 in 2024.
Franchisee Turnover
Medium
Explanation:
- While not excessively high, there have been a number of franchise transfers, terminations, and non-renewals (Item 20, Tables 2 & 3). This turnover warrants investigation to understand the underlying reasons and assess potential risks to franchisee success.
Potential Mitigations:
- Contact current and former franchisees listed in Exhibits C and D to discuss their experiences and understand the reasons for transfers, terminations, and non-renewals.
- Analyze the franchisor's support programs and franchisee satisfaction levels to identify potential areas for improvement.
FDD Citations:
- Item 20, Table 2: Shows franchise transfers.
- Item 20, Table 3: Shows terminations and non-renewals.
- Item 20: References Exhibits C and D for further franchisee information.
Confidentiality and Non-Disparagement Clauses
Low
Explanation:
- The FDD discloses that current and former franchisees have signed confidentiality and non-disparagement clauses, potentially limiting the information available to prospective franchisees. This can make it difficult to get a complete picture of the franchise system and the experiences of other franchisees.
Potential Mitigations:
- Speak with as many current and former franchisees as possible, focusing on questions that are not restricted by the confidentiality agreements (e.g., operational aspects, training, local market conditions).
- Consult with legal counsel to understand the implications of the confidentiality and non-disparagement clauses.
- Rely on publicly available information and industry resources to gather additional insights into the brand and its performance.
FDD Citations:
- Item 20: "In the last 3 fiscal years, franchisees have signed confidentiality clauses with us and/or our predecessor...You may wish to speak with current or former franchisees but be aware that not all franchisees will be able to communicate with you."
Disclosure & Representation Risks
3 risks identified
2
1
Misrepresentation of Franchisor's Obligations
High
Explanation:
- The FDD lacks specific details regarding Franchisor's ongoing support and obligations after the initial setup. Vague language like "reasonable assistance" leaves room for interpretation and potential disputes. The absence of clear performance metrics for Franchisor's support could lead to inadequate assistance and hinder franchisee success.
Potential Mitigations:
- Request a detailed addendum outlining specific support services, timelines, and performance metrics for Franchisor's obligations. Negotiate clearer language in the franchise agreement regarding the scope and extent of ongoing support.
- Contact existing franchisees to inquire about the level and quality of support received from the franchisor. This can provide real-world insights into Franchisor's fulfillment of its obligations.
FDD Citations:
- Item 1, Section 6: "Franchisor’s OBLIGATIONS" - The section lacks specific details about the extent and nature of support provided.
Unilateral System Changes by Franchisor
High
Explanation:
- Franchisor retains the right to unilaterally modify the System, including products, services, and operating procedures. This poses a significant risk as changes could increase costs, disrupt operations, or negatively impact the franchisee's profitability without their consent.
Potential Mitigations:
- Negotiate for a clause requiring franchisee approval or a structured process for implementing system changes, especially those with significant financial implications.
- Request historical data on past system changes and their impact on franchisees to assess the frequency and potential consequences of such modifications.
FDD Citations:
- Item 1, Section 1.1: "Franchisor has the right to supplement, improve or otherwise modify the System from time to time in Franchisor’s sole discretion, and Franchisee agrees to comply with all changes..."
Limited Exclusivity in Territory
Medium
Explanation:
- The FDD grants limited territorial exclusivity, allowing the franchisor to operate or license other businesses, including similar concepts, within the franchisee's territory under different brands. This could lead to increased competition and cannibalization of sales.
- Franchisor retains broad rights to operate in alternative channels, including supermarkets and other retail outlets, potentially competing directly with the franchisee.
Potential Mitigations:
- Negotiate for clearer definitions of the territory and stricter limitations on Franchisor's ability to operate competing businesses within the designated area.
- Request data on existing alternative channel operations by the franchisor and its affiliates to assess the potential impact on the franchisee's business.
FDD Citations:
- Item 1, Section 1.2: "Exclusions and Reservations" - This section details the limitations on exclusivity and Franchisor's reserved rights.
Financial & Fee Risks
3 risks identified
1
2
Non-Refundable Initial Franchise Fee Used for General Operating Funds
Medium
Explanation:
- The initial franchise fee, a substantial investment, is non-refundable and goes into Barberitos' general operating funds. This lacks transparency and raises concerns about how the funds are used. There's no guarantee it directly benefits franchisees, potentially impacting support and resources.
Potential Mitigations:
- Inquire about the specific allocation of franchise fees and seek evidence of how it supports franchisee success (training, marketing, R&D).
- Negotiate a partial refund clause under specific circumstances, such as failure to secure a suitable location.
FDD Citations:
- Item 4: "The initial franchise fee constitutes part of our general operating funds and will be used as such in our discretion."
High Royalty Fee and Automatic Draw
High
Explanation:
- The 6% royalty fee is relatively high compared to industry averages, significantly impacting profitability. The 'Automatic Draw' clause allows Barberitos to withdraw 125% of the previous week's fees if sales data isn't timely, potentially creating cash flow issues for franchisees.
Potential Mitigations:
- Negotiate a lower royalty rate, especially in the initial years of operation.
- Implement robust sales reporting systems to ensure timely submission of data and avoid the automatic draw penalty.
- Benchmark royalty fees against competitors to assess competitiveness.
FDD Citations:
- Item 6, Note 1: "You must pay us a weekly royalty fee equal to 6% of your Net Sales."
- Item 6, Note 1: (Regarding Automatic Draw) "...we may process an electronic funds transfer for the subject week in the amount of 125% of the last royalty fee and advertising fee paid to us..."
Brand Development Fund Controlled by Franchisor
Medium
Explanation:
- The 3% Brand Development Fund fee, while seemingly beneficial, is controlled by Barberitos with limited franchisee input. The franchisor can increase this fee up to 5% with 30 days' notice. The agreement with affiliate BBF raises potential conflict-of-interest concerns.
Potential Mitigations:
- Request detailed reports on Brand Development Fund expenditures and its impact on franchisee businesses.
- Seek greater transparency and franchisee representation in the management of the fund.
- Clarify the role and relationship with BBF to ensure no undue advantage is taken.
FDD Citations:
- Item 6, Note 2: "Currently, you must pay 3% of Net Sales."
- Item 6, Note 2: "We reserve the right to increase your required Brand Development Fund contribution to an amount up to 5% of Net Sales upon 30 days’ written notice..."
- Item 6, Note 2: "In 2016, we signed an agency agreement with our affiliate, BBF, allowing BBF to hold the Brand Development Fund on our behalf."
Legal & Contract Risks
5 risks identified
1
3
1
Conflict between Franchise Agreement and State Laws (WA & VA)
High
Explanation:
- The FDD states that Washington (WA) and Virginia (VA) state franchise laws may supersede the Franchise Agreement in areas like termination, renewal, and non-compete clauses. This creates uncertainty and potential legal challenges if the agreement's terms contradict state law.
- Specifically, the WA addendum repeatedly emphasizes that RCW 19.100.180 and related statutes prevail in case of conflict, impacting termination, renewal, non-competes, employee solicitation, and dispute resolution.
- The VA addendum highlights that termination clauses lacking "reasonable cause" as defined by VA law may be unenforceable.
Potential Mitigations:
- Carefully review the Franchise Agreement with legal counsel specializing in WA and VA franchise law to identify any conflicts.
- Request clarification from the franchisor on how they intend to reconcile any discrepancies between the agreement and state laws.
- Negotiate amendments to the Franchise Agreement to ensure compliance with WA and VA laws before signing.
FDD Citations:
- Item 17(h): Virginia and Washington Addenda - Multiple references to state law superseding the Franchise Agreement.
- Washington Addendum: "In the event of a conflict of laws, the provisions of the Washington Franchise Investment Protection Act, Chapter 19.100 RCW will prevail."
- Item 17(h): "Under Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor to cancel a franchise without reasonable cause."
Restrictions on Non-Compete and Employee Solicitation (WA)
Medium
Explanation:
- The Washington Addendum states that non-compete clauses are void unless specific income thresholds are met, and that restrictions on soliciting employees of the franchisor or other franchisees are unenforceable.
- This could limit the franchisor's ability to protect its brand and trade secrets, and may make it easier for employees to move between franchise locations or to competitors.
Potential Mitigations:
- Understand the specific income thresholds for enforcing non-competes in WA and assess the potential impact on your business.
- Consult with legal counsel specializing in WA employment law to develop alternative strategies for protecting confidential information and retaining key employees.
- Discuss with the franchisor their plans for mitigating the risks associated with limited non-compete enforceability.
FDD Citations:
- Washington Addendum: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable..."
- Washington Addendum: "RCW 49.62.060 prohibits a franchisor from restricting... soliciting or hiring any employee..."
Waiver of Claims Limitations (VA & WA)
Medium
Explanation:
- Both the VA and WA addenda explicitly prohibit waivers of claims under state franchise laws, including fraud in the inducement. This protects franchisees from unknowingly signing away their rights.
- However, the repeated mention of this in multiple sections suggests potential past issues or a strong emphasis on protecting franchisee rights in these states.
Potential Mitigations:
- Review these clauses carefully with legal counsel to fully understand your rights and protections under VA and WA law.
- Ensure all communications and agreements with the franchisor are consistent with these non-waiver provisions.
FDD Citations:
- Item 17(h), Washington Addendum: "No statement, questionnaire, or acknowledgment... shall have the effect of (i) waiving any claims under any applicable state franchise law, including fraud in the inducement..." (appears in both sections)
Transfer Fee Limitations (WA)
Medium
Explanation:
- The Washington Addendum limits transfer fees to the franchisor's reasonable estimated or actual costs. This protects franchisees from excessive fees upon transferring their franchise.
- However, disputes may arise regarding what constitutes "reasonable" costs.
Potential Mitigations:
- Request a detailed breakdown of the franchisor's estimated transfer costs upfront.
- Consult with legal counsel specializing in WA franchise law to understand what constitutes reasonable transfer fees and negotiate appropriate terms.
FDD Citations:
- Washington Addendum: "Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or actual costs in effecting a transfer."
Franchisee Questionnaire Restrictions
Low
Explanation:
- The Franchisee Questionnaire is not to be signed by residents or prospective operators in certain states, including WA and VA. This might indicate specific legal considerations or regulations in these states that impact the franchisor-franchisee relationship.
- While not a direct risk, it highlights the importance of state-specific legal advice.
Potential Mitigations:
- If operating in one of the listed states, consult with legal counsel to understand the implications of this restriction and ensure your rights are protected.
- Inquire with the franchisor about the rationale behind this restriction for your specific state.
FDD Citations:
- Exhibit M: "DO NOT SIGN THIS QUESTIONNAIRE IF YOU RESIDE IN, OR INTEND TO OPERATE THE FRANCHISED BUSINESS IN, ANY OF THE FOLLOWING STATES: CA, HI, IL, IN, MD, MI, MN, NY, ND, RI, SD, VA, WA, WI"
Territory & Competition Risks
6 risks identified
2
3
1
No Exclusive Territory
High
Explanation:
- The FDD explicitly states that franchisees will not receive an exclusive territory. This means you could face direct competition from other Barberitos franchisees, corporate-owned locations, or other brands under the franchisor's control.
- This significantly increases the risk of market saturation and cannibalization, potentially impacting your revenue and profitability.
Potential Mitigations:
- Carefully evaluate the proposed location and surrounding areas for existing and potential future Barberitos locations. Request detailed information from the franchisor about their development plans.
- Negotiate for a protected radius or other territorial considerations, even if full exclusivity isn't granted.
- Focus on building a strong local customer base and brand loyalty through superior service and marketing efforts.
FDD Citations:
- Item 12: "You will not receive an exclusive territory. You may face competition from other franchisees, from outlets that we own, or from other channels of distribution or competitive brands that we control."
Franchisor Undercapitalization
High
Explanation:
- The FDD discloses that the franchisor has not demonstrated adequate capitalization and relies on franchise fees to fund operations. This raises concerns about the franchisor's financial stability and ability to provide ongoing support and resources to franchisees.
- This dependence on franchise fees could lead to prioritization of selling new franchises over supporting existing ones.
Potential Mitigations:
- Thoroughly review the franchisor's financial statements and discuss their financial health with a financial advisor.
- Inquire about the franchisor's plans for achieving sustainable profitability and reducing reliance on franchise fees.
- Consider the implications of the fee deferral condition in California and how it might affect the franchisor's cash flow.
FDD Citations:
- Item 18: "The Department has determined that we, the franchisor, have not demonstrated we are adequately capitalized and/or that we must rely on franchise fees to fund our operations."
Enforceability of Non-Compete and Choice of Law Provisions in California
Medium
Explanation:
- The FDD notes that the non-compete clause and the choice of Pennsylvania law may not be enforceable under California law. This creates uncertainty for California franchisees regarding their post-termination obligations and the governing jurisdiction for disputes.
Potential Mitigations:
- If operating in California, consult with a California-licensed attorney specializing in franchise law to understand the implications of these provisions and potential legal challenges.
- Discuss the non-compete clause with the franchisor and seek clarification on its enforceability in your specific situation.
FDD Citations:
- Item 9: "The franchise agreement contains a covenant not to compete, which extends beyond the termination of the franchise. This provision may not be enforceable under California law."
- Item 11: "This agreement requires application of the laws of the Commonwealth of Pennsylvania. This provision may not be enforceable under California law."
Competition from Other Channels
Medium
Explanation:
- The FDD mentions competition from "other channels of distribution or competitive brands" controlled by the franchisor. This lack of clarity raises concerns about potential conflicts of interest and the franchisor's commitment to the franchise system.
Potential Mitigations:
- Request detailed information from the franchisor about these other channels and brands, including their market positioning and potential impact on franchisees.
- Assess the potential for these channels to undermine the franchise system and cannibalize sales.
FDD Citations:
- Item 12: "You may face competition from...other channels of distribution or competitive brands that we control."
Website Disclaimer
Low
Explanation:
- The FDD includes a disclaimer stating that the franchisor's website has not been reviewed or approved by the California Department of Financial Protection & Innovation. While not a direct risk to franchisees, it highlights the importance of verifying information presented on the website.
Potential Mitigations:
- Confirm any critical information found on the website with the franchisor directly and through independent research.
FDD Citations:
- Item 14: "OUR WEBSITE, WWW.BARBERITOS.COM, HAS NOT BEEN REVIEWED OR APPROVED BY THE CALIFORNIA DEPARTMENT OF FINANCIAL PROTECTION & INNOVATION."
Material Modification Disclosure Requirements (California)
Medium
Explanation:
- For California franchisees, the FDD highlights the franchisor's obligation to provide a disclosure document before soliciting any material modification to the franchise agreement. This is a legal requirement specific to California, but it's important for franchisees in that state to be aware of this protection.
- Lack of proper disclosure could lead to disputes and legal challenges.
Potential Mitigations:
- If operating in California, ensure you receive and review any disclosure documents related to proposed material modifications before agreeing to them. Consult with legal counsel if necessary.
FDD Citations:
- Item 12: "Section 31125 of the California Corporation Code requires the franchisor to give the franchisee a disclosure document...before a solicitation of a proposed material modification of an existing franchise."
Regulatory & Compliance Risks
3 risks identified
2
1
Limited Operating History of Franchisor
High
Explanation:
- The franchisor, Barberitos Franchising Co., LLC, was formed in February 2022, indicating a limited operating history in franchising.
- This lack of experience could lead to unforeseen challenges in providing adequate support, managing the franchise system, and adapting to market changes.
- The newness of the franchising entity raises concerns about the stability and long-term viability of the franchise system.
Potential Mitigations:
- Thoroughly research the management team's experience in the food and beverage industry and franchising, even if with different brands.
- Contact existing franchisees to assess their satisfaction with the support and training provided by the franchisor.
- Carefully review the FDD for any disclosures regarding the franchisor's plans for growth and financial stability.
FDD Citations:
- Item 1: "We are a Delaware limited liability company formed on February 9, 2022..."
Mandatory Sourcing Restrictions and Potential Conflicts of Interest
High
Explanation:
- Franchisees are required to purchase certain products and services from approved suppliers, potentially limiting their ability to negotiate better prices or choose preferred vendors.
- The franchisor and its affiliates receive administrative fees from approved suppliers, creating a potential conflict of interest where the franchisor may prioritize its own financial gain over the franchisees' best interests.
- The mandatory Prime Supplier Program and the requirement to sign the Sysco Application and Agreement further restrict franchisees' purchasing flexibility and may lead to higher costs.
Potential Mitigations:
- Carefully analyze the pricing and quality of goods and services offered by approved suppliers compared to market rates.
- Request a complete list of approved suppliers and their associated fees before signing the franchise agreement.
- Consult with a franchise attorney to understand the implications of the mandatory sourcing requirements and potential conflicts of interest.
FDD Citations:
- Item 8: "We and/or our affiliates may derive revenue from your purchase of certain foodstuffs and other required products..."
- Item 8: "We have established a Prime Supplier Program..."
- Item 8: "In order to obtain the pricing we or our affiliates negotiate, you must sign the Sysco Application and Agreement..."
Limited Supplier Approval Process
Medium
Explanation:
- The franchisor has sole discretion in approving new suppliers, and the criteria for approval are not disclosed to franchisees.
- The approval process can be lengthy and costly, with a minimum fee of $500, potentially discouraging franchisees from seeking alternative suppliers.
- The franchisor's ability to revoke supplier approval without cause can disrupt franchisees' operations and supply chains.
Potential Mitigations:
- Inquire about the supplier approval process and request examples of previously approved and rejected suppliers.
- Negotiate a clause in the franchise agreement that provides for a more transparent and objective supplier approval process.
- Develop relationships with potential alternative suppliers in advance, in case approved suppliers fail to meet expectations.
FDD Citations:
- Item 8: "If you wish to obtain equipment...from a supplier...that is not on our list of approved suppliers, you may request our approval..."
- Item 8: "We do not make our criteria for supplier or distributor approval available to our franchisees."
Franchisor Support Risks
3 risks identified
1
2
Mandatory Cooperative Marketing Contributions with Limited Franchisee Control
Medium
Explanation:
- Franchisees are required to contribute to cooperative marketing efforts, with contribution amounts determined by majority vote of cooperative members. This can lead to situations where contributions exceed the Local Advertising Requirement (LAR), potentially straining franchisee budgets.
- While the franchisor matches contributions for company-owned stores, the franchisor retains sole discretion to grant exemptions, creating potential disparity in contributions and potentially disadvantaging some franchisees.
- Lack of clear details on cooperative governance and decision-making processes raises concerns about franchisee influence over marketing strategy and budget allocation.
Potential Mitigations:
- Carefully review the cooperative agreement and understand the voting structure, contribution assessment process, and potential for exceeding the LAR.
- Inquire about the historical contribution amounts and the franchisor's criteria for granting exemptions.
- Request clear documentation on the cooperative's governance structure and franchisee involvement in decision-making.
FDD Citations:
- Item 11: "Each Cooperative may require its members to make contributions...These contributions may exceed the amount of the Local Advertising Requirement..."
- Item 11: "We may grant...an exemption...from the requirement of membership in a Cooperative...Our decision concerning any request for exemption will be final and at our sole discretion."
Limited Franchisee Input on Advertising Policies
Medium
Explanation:
- The franchisor does not currently have a franchisee advertising council, limiting franchisee input on advertising strategies and policies.
- While the franchisor may create a council in the future, selection criteria and the council's actual influence remain uncertain.
Potential Mitigations:
- Inquire about the franchisor's plans for establishing a franchisee advisory council and the potential timeline.
- Request clarification on the council's structure, decision-making authority, and franchisee representation.
- Assess the franchisor's responsiveness to franchisee feedback on advertising and marketing initiatives.
FDD Citations:
- Item 11: "We do not have an advertising council composed of franchisees...The Franchise Agreement gives us the right, in our discretion, to create a franchisee advisory council..."
Complete Control and Ownership of POS Data by Franchisor
High
Explanation:
- All data recorded on the mandatory POS system becomes the franchisor's property, with no contractual limitations on their access or usage.
- This lack of control over sales data can limit franchisees' ability to analyze their own performance and make informed business decisions.
- The franchisor's unrestricted access to sensitive business data raises potential privacy concerns.
Potential Mitigations:
- Seek legal advice regarding the implications of the franchisor's ownership and access to POS data.
- Inquire about the franchisor's data security measures and policies to protect sensitive information.
- Negotiate for greater transparency and access to aggregated sales data for benchmarking and performance analysis.
FDD Citations:
- Item 11: "All data you record on the POS System becomes immediately, and in real time, our property...We will have independent access to the information you record, and there are no contractual limitations on our right of access."
Exit & Transfer Risks
4 risks identified
2
2
Restrictive State Franchise Laws Impacting Transfer
High
Explanation:
- Specific state franchise laws, particularly in Virginia and Washington, may supersede the Franchise Agreement and impose limitations on the franchisor's ability to terminate or refuse transfer of the franchise, potentially making it difficult to exit the franchise system under unfavorable conditions or transfer ownership as desired.
- Virginia law requires "reasonable cause" for termination, which may be more stringent than the Franchise Agreement's terms.
- Washington law (RCW 19.100.180) also grants specific protections regarding termination and renewal, potentially limiting the franchisor's control and impacting the franchisee's exit options.
Potential Mitigations:
- Carefully review the specific state addendums and relevant state franchise laws (Virginia Retail Franchising Act and Washington Franchise Investment Protection Act) with legal counsel specializing in franchising in those states.
- Understand the implications of "reasonable cause" in Virginia and the specific provisions of RCW 19.100.180 in Washington.
- Negotiate clear and mutually agreeable terms regarding transfer and termination within the framework of applicable state laws during the franchise agreement negotiation process.
FDD Citations:
- Item 17(h), Virginia Addendum: "Under Section 13.1-564 of the Virginia Retail Franchising Act, it is unlawful for a franchisor to cancel a franchise without reasonable cause."
- Washington Addendum: "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."
Limitations on Non-Compete and Employee Solicitation in Washington
High
Explanation:
- Washington State law (RCW 49.62.020, 49.62.030, 49.62.060) significantly restricts the enforceability of non-compete clauses for employees and independent contractors, and prohibits restrictions on employee solicitation. This could impact the franchisee's ability to protect their business upon exit, especially if they intend to sell to a competitor or open a similar business.
- Non-compete clauses are only enforceable for employees earning over $100,000 and independent contractors earning over $250,000 annually (adjusted for inflation).
- Restrictions on soliciting employees of the franchisor or other franchisees are void and unenforceable.
Potential Mitigations:
- Consult with legal counsel specializing in Washington franchise law to understand the limitations on non-compete and employee solicitation provisions.
- Structure employment agreements and independent contractor agreements carefully to comply with Washington law.
- Consider alternative strategies for protecting business interests upon exit, such as focusing on customer loyalty programs and trade secret protection.
FDD Citations:
- Washington Addendum: "Pursuant to RCW 49.62.020, a noncompetition covenant is void and unenforceable..."
- Washington Addendum: "RCW 49.62.060 prohibits a franchisor from restricting... soliciting or hiring any employee..."
Transfer Fee Limitations in Washington
Medium
Explanation:
- Washington State law limits transfer fees to the franchisor's reasonable estimated or actual costs in effecting a transfer. This could impact the franchisor's ability to recoup investment or profit from the sale of a franchise, potentially making it less attractive for them to approve transfers and impacting the franchisee's ability to sell their business for maximum value.
Potential Mitigations:
- Review the franchisor's transfer fee policy and ensure it aligns with Washington State law.
- Request detailed documentation of the franchisor's costs associated with transfers.
- Negotiate reasonable transfer fee terms upfront in the Franchise Agreement.
FDD Citations:
- Washington Addendum: "Transfer fees are collectable to the extent that they reflect the franchisor’s reasonable estimated or actual costs in effecting a transfer."
Waiver of Claims Limitations
Medium
Explanation:
- Both Virginia and Washington state laws prohibit waivers of claims under applicable state franchise laws, including fraud in the inducement. This protects the franchisee from unknowingly signing away their rights, but it also means they retain certain legal recourse that could complicate the exit process for both parties.
Potential Mitigations:
- Consult with legal counsel in both Virginia and Washington to fully understand the implications of these provisions.
- Ensure all representations by the franchisor are accurate and documented.
- Conduct thorough due diligence before entering into the franchise agreement.
FDD Citations:
- Item 17(h), Virginia Addendum: "No statement... shall have the effect of (i) waiving any claims under any applicable state franchise law..."
- Washington Addendum: "No statement... shall have the effect of (i) waiving any claims under any applicable state franchise law..."
Operational & Brand Risks
3 risks identified
1
2
Mandatory Sourcing Restrictions & Supplier Dependence
High
Explanation:
- Franchisees are required to purchase many goods and services from approved suppliers or the franchisor, creating dependence and limiting flexibility.
- This dependence can lead to higher prices, reduced negotiating power, and potential supply chain disruptions if approved suppliers fail to perform.
- The franchisor receives administrative fees from approved suppliers, creating a potential conflict of interest where supplier selection may be influenced by franchisor revenue rather than franchisee benefit.
Potential Mitigations:
- Carefully review the list of approved suppliers and their pricing before signing the franchise agreement.
- Negotiate with the franchisor for greater flexibility in sourcing, especially for non-proprietary items.
- Understand the process and costs for requesting approval of alternative suppliers.
- Develop contingency plans for potential supply chain disruptions.
FDD Citations:
- Item 8: "You must purchase all inventory, equipment, fixtures, furnishings, product display units, signs, uniforms, supplies and materials from designated or approved suppliers, or from us."
- Item 8: "We maintain a list of approved suppliers which currently pay us or our affiliates an administrative fee based on your purchases."
Limited Supplier Approval Process
Medium
Explanation:
- The franchisor controls the supplier approval process, which can be lengthy and costly for franchisees.
- The criteria for supplier approval are not disclosed, creating a lack of transparency and potentially hindering franchisees from finding cost-effective alternatives.
- The franchisor is not obligated to consider requests for new suppliers.
Potential Mitigations:
- Thoroughly understand the supplier approval process and associated fees before proposing new suppliers.
- Request a clear explanation of the criteria used for supplier evaluation.
- Build relationships with existing approved suppliers to ensure reliable service and potentially negotiate better pricing.
FDD Citations:
- Item 8: "We are not obligated to consider requests for approval of additional suppliers or distributors…"
- Item 8: "We do not make our criteria for supplier or distributor approval available to our franchisees."
Mandatory Inventory Levels
Medium
Explanation:
- Franchisees are required to maintain specific inventory levels, which can lead to increased storage costs, spoilage, and potential cash flow issues.
- Accurately forecasting demand can be challenging, especially in the early stages of operation, leading to overstocking or shortages.
Potential Mitigations:
- Develop a robust inventory management system to track stock levels and predict demand.
- Negotiate with the franchisor for flexibility in inventory requirements, especially during the initial ramp-up period.
- Implement strategies to minimize spoilage and waste.
FDD Citations:
- Item 8: "You must at all times maintain sufficient levels of inventory to adequately meet consumer demand and to adequately service the customers at your restaurant."
Performance & ROI Risks
3 risks identified
1
2
Lack of Detailed Financial Performance Representations
High
Explanation:
- Item 5 modifies Item 19 to explicitly state that provided financial performance representations (if any) do not include crucial cost details like cost of sales, operating expenses, and other expenses necessary to calculate net income or profit.
- This lack of comprehensive cost information makes it difficult for prospective franchisees to accurately project profitability and assess the true financial viability of the franchise.
- Relying solely on gross revenue figures can create a misleadingly optimistic view of potential earnings.
Potential Mitigations:
- Conduct thorough independent research and analysis of all potential costs associated with operating a Barberitos franchise. Consult with industry experts, accountants, and existing franchisees to gather realistic cost estimates.
- Develop detailed financial projections that incorporate these estimated costs to arrive at a more accurate net income projection.
- Request detailed cost breakdowns from the franchisor, even if not explicitly included in the FDD. While Item 5 indicates they may not be provided, it's worth inquiring.
FDD Citations:
- Item 5: "The financial performance representation figures do not reflect the costs of sales, operating expenses, or other costs or expenses…"
- Item 19: (Referenced in Item 5 as containing the modified disclosure about financial performance representations)
Potential Enforceability Issues with Bankruptcy Termination Clause
Medium
Explanation:
- Item 6 discloses that the franchise agreement allows for termination upon franchisee bankruptcy, but acknowledges this provision may not be enforceable under federal bankruptcy law.
- This creates uncertainty for both the franchisor and franchisee in a bankruptcy scenario. The franchisee may not be able to rely on the protection of bankruptcy proceedings if the franchisor can successfully terminate the agreement.
Potential Mitigations:
- Consult with a bankruptcy attorney specializing in franchise law to understand the potential implications of this clause and the likelihood of its enforceability in your specific jurisdiction.
- Negotiate with the franchisor to clarify the circumstances under which the bankruptcy termination clause would be invoked.
FDD Citations:
- Item 6: "The franchise agreement provides for termination on bankruptcy. This provision may not be enforceable under federal bankruptcy law (11 U.S.C.A. Sec. 101 et seq.)."
Declining Franchise System Size
Medium
Explanation:
- Table 1 in Item 20 shows a net decrease in the total number of outlets over the reported period (2022-2024), particularly a significant drop in company-owned locations in 2024.
- This decline could indicate underlying issues with the franchise system's health, brand appeal, or market saturation.
Potential Mitigations:
- Investigate the reasons behind the decline in outlet numbers. Inquire with the franchisor about the closure of company-owned stores and any franchise terminations or non-renewals.
- Analyze market trends and competitor activity to assess the long-term viability of the Barberitos brand and concept.
FDD Citations:
- Item 20, Table 1: Shows a decrease in total outlets from 47 in 2022 to 42 in 2024.
FDD Documents by Year
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FDD Year: 2025
Uploaded: 8/8/2025
FDD Documents
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