H
Hurts Donut Company
Food and Beverage
Founded 201316 locationsCompany Profile
Year Founded:2013
Hurts Donut Company Franchise Cost
| Franchise Fee: | $35,000Key Metric |
| Total Investment: | $504,000 - $825,000Key Metric |
| Liquid Capital: | $117,500 |
| Royalty Fee: | 7% of gross sales |
| Marketing Fee: | 2% of gross sales |
Quick ROI Calculator
Based on Hurts Donut Company's actual financial data
Outlet Counts by Year
Historical outlet data extracted from FDD documents
Total US Locations:16
Scale relative to 1,000 locations
Franchised Units:15
Corporate Units:1
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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.
13
High Risk
Critical items
39% of total
18
Medium Risk
Monitor closely
55% of total
2
Low Risk
Manageable items
6% of total
33
Total Items
Factors analyzed
10 categories
6.67
Overall Score
Low RiskHigh Risk
010
Franchisor Stability Risks
3 risks identified
1
2
Declining Franchise System Size
High
Explanation:
- Item 20, Table 1 reveals a concerning decline in the total number of Hurts Donut outlets. The system shrank from 21 outlets in 2022 to 16 in 2024, a 24% decrease. This suggests potential issues with franchisee profitability, brand appeal, or market saturation.
- The decline is primarily driven by a decrease in franchised units (19 to 15) and company-owned units (2 to 1). A net loss of 7 units over two years with only 1 new opening raises serious concerns.
- The closure of 3 franchised units in 2024 (Item 20, Table 1) without any terminations, non-renewals, or reacquisitions by the franchisor (Item 20, Table 3) suggests potential closures due to financial distress or other undisclosed reasons. This lack of transparency is a red flag.
Potential Mitigations:
- Thoroughly investigate the reasons behind the unit closures. Interview existing and former franchisees to understand their experiences and challenges.
- Analyze the franchisor's support systems and marketing strategies to identify areas for improvement. Assess market conditions and competition to determine if the brand is still viable.
- Review the franchisor's financials (Item 21, Exhibit G) to assess their financial health and ability to support the franchise system.
FDD Citations:
- Item 20, Table 1: Systemwide Outlet Summary
- Item 20, Table 3: Status of Franchised Outlets
- Item 21: Financial Statements
Limited Franchisee Transfers
Medium
Explanation:
- Item 20, Table 2 shows only two franchise transfers in 2024, both in Texas and Arizona. A low number of transfers could indicate limited resale value or difficulty in attracting new franchisees.
Potential Mitigations:
- Inquire about the reasons for the low transfer rate. Understand the typical sales price and time on market for resold Hurts Donut franchises.
- Compare the transfer rate to industry averages and similar franchise concepts.
FDD Citations:
- Item 20, Table 2: Transfer of Outlets
Lack of Company-Owned Outlet Growth
Medium
Explanation:
- Item 5 projects zero new company-owned outlets in the next fiscal year. Item 20, Table 4 shows a decline in company-owned units from 3 in 2022 to 1 in 2024. This lack of growth suggests the franchisor may not be fully committed to the brand's expansion or may be facing internal challenges.
Potential Mitigations:
- Question the franchisor about their long-term growth strategy for company-owned units. Understand their rationale for not expanding corporate locations.
- Assess if the franchisor's focus is primarily on franchise fees rather than the overall brand health and growth.
FDD Citations:
- Item 5: Projected Openings
- Item 20, Table 4: Status of Company-Owned Outlets
Disclosure & Representation Risks
3 risks identified
1
2
High Franchisee Turnover/Termination Rate
High
Explanation:
- Exhibit C lists a significant number of terminated, non-renewed, or transferred franchises relative to the total number of operating franchises in Exhibit B. This suggests potential systemic issues within the franchise model, such as inadequate support, unrealistic expectations, or market saturation.
- High turnover can negatively impact brand reputation, create instability within the franchise network, and make it harder to attract new franchisees.
Potential Mitigations:
- Carefully analyze the reasons for terminations and non-renewals in Exhibit C. Contact former franchisees to understand their experiences and identify any recurring problems.
- Compare the turnover rate to industry averages and other similar franchises. A higher rate warrants deeper investigation.
- Assess the franchisor's support systems and training programs. Ensure they adequately prepare franchisees for the challenges of running the business.
FDD Citations:
- Item 23, Exhibit B: List of current franchisees.
- Item 23, Exhibit C: List of former franchisees with reasons for termination/non-renewal.
Limited Operating History
Medium
Explanation:
- Hurts Donut Company was founded in 2013. While not extremely young, this is a relatively short operating history in the competitive food and beverage industry. This can present risks related to brand recognition, operational efficiency, and long-term viability.
Potential Mitigations:
- Research the franchisor's growth trajectory and financial performance since its inception. Look for consistent growth and profitability.
- Speak with existing franchisees about their experiences and satisfaction with the franchise system.
- Evaluate the franchisor's management team and their experience in the industry.
FDD Citations:
- General FDD Information: Franchisor's founding date (2013).
Concentrated Geographic Presence
Medium
Explanation:
- Exhibit B shows a concentration of franchisees in certain geographic areas (e.g., Iowa, Texas). This concentration can lead to market saturation and increased competition among franchisees within those areas.
Potential Mitigations:
- Carefully analyze the market demographics and competition in your desired territory. Consider the potential impact of existing Hurts Donut locations and other similar businesses.
- Discuss the franchisor's plans for future expansion and how it might affect your territory.
- Negotiate appropriate territorial protections in the franchise agreement.
FDD Citations:
- Item 23, Exhibit B: List of franchisees and their locations.
Financial & Fee Risks
3 risks identified
2
1
Deferred Initial Fees Due to Franchisor Financial Condition
High
Explanation:
- The FDD discloses that Hurts Donut Company defers collection of initial fees until pre-opening obligations are met and the franchisee commences business. This deferral is mandated by the Illinois Attorney General due to the franchisor's financial condition.
- This raises serious concerns about the franchisor's financial stability and ability to fulfill its obligations to franchisees. It suggests potential cash flow problems or other financial distress that could negatively impact support, training, and other crucial aspects of the franchise relationship.
Potential Mitigations:
- Thoroughly investigate the franchisor's financial health. Request audited financial statements and consult with a financial advisor to assess their stability.
- Seek legal counsel specializing in franchising to understand the implications of the deferred fees and potential recourse if the franchisor fails to meet its obligations.
- Consider negotiating stronger guarantees or protections in the franchise agreement to mitigate the risk associated with the franchisor's financial situation.
FDD Citations:
- Item 5: "The Illinois Attorney General’s Office imposed this deferral requirement due to our financial condition."
Numerous and High Non-Compliance Fees
High
Explanation:
- Item 6 details a substantial list of fees for various non-compliance issues, ranging from uncleanliness and dress code violations to improper trademark use and unauthorized products. The sheer number and high amounts of these fees create a significant financial risk for franchisees.
- This suggests a potentially punitive environment and a high level of scrutiny from the franchisor, which could strain the franchise relationship and lead to disputes.
Potential Mitigations:
- Carefully review the Operations Manual and all franchise agreements to fully understand the requirements and potential penalties for non-compliance.
- Develop strong internal controls and training programs to ensure adherence to all brand standards and operational procedures.
- Negotiate with the franchisor to clarify the application of these fees and potentially reduce or eliminate some of the more onerous penalties.
FDD Citations:
- Item 6: Entire section detailing various non-compliance fees.
Automatic Bank Draft Requirement and Potential for Unauthorized Charges
Medium
Explanation:
- The FDD requires franchisees to authorize automatic bank drafts (ACH) for all fees and payments. This creates a risk of unauthorized or incorrect charges being debited from the franchisee's account.
- The requirement to provide new bank documents within three days of a change also poses a logistical challenge and potential for delays or missed payments.
Potential Mitigations:
- Carefully review the Automatic Bank Draft Authorization agreement and understand the terms and conditions.
- Implement rigorous accounting practices to reconcile all debits against invoices and statements.
- Maintain open communication with the franchisor regarding any discrepancies or concerns about charges.
FDD Citations:
- Item 6, Note 3: "We require you to execute an Automatic Bank Draft Authorization and pay most fees to us via ACH electronic funds transfer."
- Item 6, Note 3: "If you change your bank account... you must notify us within one day, and sign and deliver to us and the bank new documents... within three days."
- Item 6, Note 3: Reference to Schedule 2 of the Franchise Agreement.
Legal & Contract Risks
6 risks identified
2
3
1
Conflict between Franchise Agreement and Wisconsin Fair Dealership Law
High
Explanation:
- Item 17 states that if the Franchise Agreement conflicts with the Wisconsin Fair Dealership Law, the addendum prevails. This creates uncertainty and potential legal challenges, as the specific conflicting provisions are not disclosed. It also suggests potential inherent conflicts between the Franchise Agreement and state law.
- The interaction between the Franchise Agreement, the addendum, and the Wisconsin Fair Dealership Law could be complex and difficult to interpret, leading to disputes.
Potential Mitigations:
- Carefully review the Franchise Agreement, the Wisconsin addendum, and the Wisconsin Fair Dealership Law with an attorney specializing in franchise law in Wisconsin. Pay close attention to termination clauses, non-renewal clauses, and any clauses related to "substantial change of competitive circumstances."
- Request clarification from the franchisor regarding the specific provisions that conflict with the Wisconsin Fair Dealership Law and how the addendum addresses these conflicts.
- Negotiate changes to the Franchise Agreement or addendum to minimize potential conflicts and ensure compliance with Wisconsin law.
FDD Citations:
- Item 17: "If the Franchise Agreement contains any provisions that conflict with the Wisconsin Fair Dealership Law, the provisions of this Addendum shall prevail to the extent of such conflict."
- Exhibit J: "Wisconsin" listed under states with franchise laws.
Enforceability of Non-Competition Agreement
High
Explanation:
- Non-competition agreements can be difficult to enforce if they are deemed too broad in scope or duration. The FDD does not provide details about the specific restrictions in the non-competition agreement.
- Overly restrictive non-competition agreements can limit future business opportunities for the franchisee after the franchise relationship ends.
Potential Mitigations:
- Carefully review the Non-Competition Agreement with an attorney specializing in franchise law to assess its reasonableness and enforceability in your specific jurisdiction.
- Negotiate with the franchisor to narrow the scope and duration of the non-competition agreement to a reasonable and enforceable level.
- Understand the specific restrictions on post-termination activities, including geographic limitations, time limitations, and the types of businesses prohibited.
FDD Citations:
- Item 22, Exhibit E, Attachment 3: "Nondisclosure and Non-Competition Agreement"
Variations in State Franchise Laws
Medium
Explanation:
- Exhibit J lists several states with specific franchise laws, indicating potential variations in legal requirements and protections for franchisees depending on the location.
- Failure to comply with specific state franchise laws can lead to legal penalties and complications.
Potential Mitigations:
- Consult with an attorney specializing in franchise law in the specific state where the franchise will be located to ensure compliance with all applicable state regulations.
- Review the State Addenda to the Franchise Agreement (Exhibit E, Attachment 9) and the State Addenda to the Disclosure Document (Exhibit I) to understand the specific requirements for your state.
FDD Citations:
- Exhibit J: "The following states have franchise laws..."
- Item 22, Exhibit E, Attachment 9: "State Addenda to the Franchise Agreement"
- Exhibit I: "State Addenda to the Disclosure Document"
Automatic Bank Draft Authorization
Medium
Explanation:
- Authorizing automatic bank drafts can pose a risk if disputes arise with the franchisor, as it may be difficult to stop payments.
Potential Mitigations:
- Carefully review the terms and conditions of the Automatic Bank Draft Authorization agreement.
- Understand the procedures for stopping payments and resolving any discrepancies.
- Consider alternative payment methods if you are uncomfortable with automatic drafts.
FDD Citations:
- Item 22, Exhibit E, Attachment 2: "Automatic Bank Draft Authorization"
Lease Rider Agreement Implications
Medium
Explanation:
- The Lease Rider Agreement may impose additional obligations and restrictions on the franchisee related to the leased premises. The FDD provides no details about these obligations.
Potential Mitigations:
- Carefully review the Lease Rider Agreement with an attorney specializing in real estate law to understand its implications.
- Negotiate any unfavorable terms with the franchisor and landlord.
- Ensure the lease terms align with the franchise agreement and business plan.
FDD Citations:
- Item 22, Exhibit E, Attachment 4: "Lease Rider Agreement"
Pending Effective Dates in Multiple States
Low
Explanation:
- Exhibit J indicates "Pending" effective dates for the FDD in several states (Illinois, Michigan, Minnesota, South Dakota). This could delay franchise operations in those states and create uncertainty.
Potential Mitigations:
- Confirm the current effective date of the FDD for the target state with the franchisor before proceeding.
- Inquire about the reasons for the pending status and the expected timeline for approval.
- Factor potential delays into the business plan.
FDD Citations:
- Exhibit J: "Pending" effective dates for Illinois, Michigan, Minnesota, and South Dakota.
Territory & Competition Risks
3 risks identified
3
Limited Territory Size and Population Density
Medium
Explanation:
- The FDD mentions a minimum population of 150,000 within a territory. This may not be sufficient to support a Hurts Donut Company, especially in areas with high competition or low disposable income. The limited size of the territory could restrict growth potential and revenue generation.
- The specific geographic region defined by zip codes, natural, or political boundaries may not align with actual market dynamics or customer traffic patterns.
Potential Mitigations:
- Thoroughly research the demographics, competition, and economic conditions within the assigned territory. Analyze consumer spending habits, traffic patterns, and proximity to complementary businesses.
- Negotiate for a larger territory or a higher population density during the franchise agreement process, especially if the proposed territory appears limited.
- Develop a strong local marketing strategy to maximize market penetration within the assigned territory.
FDD Citations:
- Item 12: "A territory will normally include a minimum population of at least 150,000 people."
- Item 12: "The territory will be for a specific geographic region that we define and approve by zip codes, natural, or political boundaries as set forth on Attachment 1 to the Franchise Agreement."
No Right of First Refusal for Additional Territories
Medium
Explanation:
- The FDD explicitly states that franchisees are not granted options, rights of first refusal, or similar rights to acquire additional franchises. This limits expansion opportunities within the market and prevents franchisees from consolidating their presence in a successful area.
Potential Mitigations:
- Discuss potential expansion plans with the franchisor early on and express interest in acquiring additional territories if the initial franchise proves successful.
- Maintain open communication with the franchisor regarding new territory availability and express interest in any adjacent or desirable territories.
- Explore alternative growth strategies, such as developing multiple units within the existing territory (if allowed) or expanding through different business models.
FDD Citations:
- Item 12: "We do not grant you options, rights of first refusal, or similar rights to acquire additional franchises."
Competition from Other Distribution Channels
Medium
Explanation:
- The franchisor and its affiliates reserve the right to use other distribution channels, such as internet sales, catalog sales, telemarketing, and direct marketing, within the franchisee's territory. This could create competition and potentially cannibalize sales from the franchisee's physical location.
Potential Mitigations:
- Clarify the franchisor's strategy for online sales and other distribution channels within franchise territories. Negotiate for clear boundaries and limitations on these activities.
- Develop a strong online presence and leverage digital marketing strategies to compete effectively with the franchisor's online channels.
- Focus on providing exceptional customer service and a unique in-store experience to differentiate the physical location from online offerings.
FDD Citations:
- Item 12: "We or an affiliate reserves the right to use other channels of distribution, such as the Internet, catalog sales, telemarketing, or other direct marketing sales, to solicit or accept orders within your territory using our principal trademarks…"
Regulatory & Compliance Risks
3 risks identified
2
1
Over-Reliance on Affiliate Suppliers
High
Explanation:
- Mandatory purchasing from affiliates (Here's Your Sign, LLC for signage and vehicle wraps, and Hurts Donut Company for display cases) creates a potential conflict of interest and may lead to inflated prices or reduced quality compared to independent suppliers.
- Officers having ownership in both Hurts Donut Company and Here's Your Sign, LLC exacerbates this risk (Item 8: Officer Interests in Suppliers).
- Lack of transparency in affiliate pricing and potential undisclosed profits raise concerns about fairness to franchisees.
Potential Mitigations:
- Carefully review the pricing and quality offered by affiliate suppliers compared to market alternatives. Negotiate pricing where possible.
- Consult with legal counsel specializing in franchising to understand the implications of mandatory affiliate purchases and potential legal recourse.
- Form a franchisee association to collectively bargain for better pricing and terms with affiliate suppliers.
FDD Citations:
- Item 8: Restrictions on Sources of Products and Services - "You must purchase all of your signage and artwork from our affiliate, Here’s Your Sign, LLC, unless we otherwise approve."
- Item 8: Officer Interests in Suppliers
- Item 8: Whether we or our Affiliates are Approved Suppliers
Significant Portion of Revenue from Required Purchases
High
Explanation:
- A substantial portion of the franchisor's revenue comes from required purchases and rebates from suppliers (14% in 2024 - Item 8: Revenue from Required Purchases). This incentivizes the franchisor to prioritize these revenue streams over franchisee profitability.
- This creates a potential conflict of interest where the franchisor may be motivated to mandate purchases that benefit them financially, even if alternative options are more cost-effective for franchisees.
Potential Mitigations:
- Analyze the franchisor's financial statements carefully to understand the extent of their reliance on required purchases.
- Compare the cost of required purchases with market rates to assess potential markups.
- Discuss this concern with existing franchisees to gain insights into their experiences with required purchases and supplier relationships.
FDD Citations:
- Item 8: Revenue from Required Purchases - "In our last fiscal year, which ended December 31, 2024, we earned $30,447 in revenue from required purchases or leases by franchisees (for display cases and merchandise offerings) and $255,096 in rebates, representing 14% of our total revenue of 1,718,776."
Limited Supplier Alternatives and Approval Process
Medium
Explanation:
- While alternative suppliers are permitted, the approval process is controlled by the franchisor with no defined criteria (Item 8: Alternative Suppliers). This gives the franchisor significant discretion and could potentially limit franchisees' ability to secure more favorable pricing or product options.
- The lack of written criteria for supplier approval creates a lack of transparency and potential for arbitrary decisions.
Potential Mitigations:
- Request clarification from the franchisor regarding their supplier evaluation process and factors considered for approval.
- Document all communications with the franchisor regarding alternative supplier requests.
- Consult with existing franchisees to understand their experiences with seeking approval for alternative suppliers.
FDD Citations:
- Item 8: Alternative Suppliers - "We do not maintain written criteria for approving suppliers and thus these criteria are not available to you or your proposed supplier."
Franchisor Support Risks
3 risks identified
1
1
1
Limited Training for Experienced Franchisees
Medium
Explanation:
- The FDD mentions that training may be condensed for franchisees with prior experience in an existing Hurts Donut store. This raises concerns about consistency and thoroughness of training, potentially leading to operational inefficiencies or inconsistencies across different locations.
- Condensed training might not adequately cover critical updates, new procedures, or best practices, putting the franchisee at a disadvantage.
Potential Mitigations:
- Request a detailed outline of both the full and condensed training programs to compare the scope and coverage.
- Negotiate for supplemental training modules to address any gaps identified in the condensed program.
- Inquire about ongoing support and mentorship opportunities to ensure continuous learning and development.
FDD Citations:
- Item 11: "Training for franchisees who have purchased an existing HDC Store may be condensed if, in our judgment, their in-Store experience will compensate for subjects not covered in the condensed classes."
Mandatory Continuing Education Costs
Low
Explanation:
- The franchisor may require mandatory continuing education, with associated travel, lodging, and meal expenses borne by the franchisee. This represents an unpredictable and potentially significant cost that could impact profitability.
Potential Mitigations:
- Request a clear policy on the frequency, duration, and estimated costs of mandatory continuing education programs.
- Negotiate a cap on annual continuing education expenses or explore options for remote training to minimize travel costs.
FDD Citations:
- Item 11: "We may offer continuing education programs... on a mandatory basis... you will pay any costs of travel, lodging, meals and other incidental expenses."
Significant Reliance on Affiliated Suppliers
High
Explanation:
- The FDD reveals a heavy reliance on the franchisor and its affiliates for essential goods and services, including signage, vehicle wraps, and display cases. This dependence limits the franchisee's flexibility in negotiating better prices or exploring alternative suppliers, potentially leading to inflated costs and reduced profitability.
- The franchisor's officers have ownership interests in these affiliated suppliers, creating a potential conflict of interest where franchisees may be obligated to purchase from companies that benefit the franchisor's leadership directly.
Potential Mitigations:
- Carefully analyze the pricing of goods and services offered by affiliated suppliers and compare them with market rates.
- Negotiate for greater flexibility in sourcing from alternative suppliers, especially for non-core items.
- Seek legal counsel to understand the implications of the franchisor's ownership interests in affiliated suppliers and any potential recourse in case of unfair pricing.
FDD Citations:
- Item 8: "You must purchase all of your signage and artwork from our affiliate, Here’s Your Sign, LLC..."
- Item 8: "Our officers... own an interest in us and in our affiliate, Here’s Your Sign, LLC."
Exit & Transfer Risks
3 risks identified
1
2
Limited Transfer Rights & Franchisor Approval
High
Explanation:
- The FDD mentions state-specific regulations impacting transfer rights, particularly Wisconsin's Fair Dealership Law, which requires "good cause" for termination, non-renewal, or substantial change and provides a cure period. This suggests potential limitations on the franchisee's ability to freely transfer or sell their franchise.
- Item 6 mentions a "Resale Fee" of $17,500 payable before resale, further indicating franchisor control over the transfer process.
- The lack of explicit details about the transfer process and criteria for approval creates uncertainty and potential difficulties for franchisees seeking to exit.
Potential Mitigations:
- Carefully review Item 17 and the Franchise Agreement, paying close attention to all clauses related to transfer and termination, including any state-specific addenda.
- Consult with a franchise attorney specializing in Wisconsin law to understand the implications of the Fair Dealership Law and how it might affect your ability to sell or transfer the franchise.
- Negotiate with the franchisor for clearer and more favorable transfer terms, including a defined process and objective criteria for approval.
FDD Citations:
- Item 17: Wisconsin Fair Dealership Law discussion.
- Exhibit J: Listing of states with specific franchise laws, including Wisconsin.
- Item 6: "Resale Fee" of $17,500.
State-Specific Franchise Laws and Compliance
Medium
Explanation:
- The FDD highlights various state franchise laws, including registration and filing requirements, which vary by state. This complexity can create compliance challenges and potential legal risks for franchisees.
- Exhibit J lists several states with specific franchise laws, and Exhibit K mentions specific disclosure requirements for Rhode Island, Michigan, and New York. Navigating these diverse regulations can be burdensome.
- Failure to comply with state-specific laws can lead to penalties, legal disputes, and difficulties in transferring or terminating the franchise.
Potential Mitigations:
- Thoroughly review Exhibits J, K, and I (State Addenda to the Disclosure Document) to understand the specific requirements for your state.
- Consult with a franchise attorney licensed in your state to ensure compliance with all applicable laws and regulations.
- Maintain meticulous records of all franchise-related transactions and communications to demonstrate compliance in case of disputes.
FDD Citations:
- Item 17: Discussion of state franchise laws.
- Exhibit J: List of states with franchise laws.
- Exhibit K: State-specific disclosure requirements.
Potential for Increased Royalties and Fees
Medium
Explanation:
- Item 6 discloses a "Marketing Royalty" of 2% of weekly Gross Revenues that is not yet implemented but is planned for the future. This represents a potential increase in ongoing costs for franchisees.
- The numerous other fees listed in Item 6, such as the "Secret Shopper Report Fee," "Store Uncleanliness Fee," and various non-compliance fees, create a risk of unexpected expenses that could impact profitability.
Potential Mitigations:
- Carefully analyze the fee schedule in Item 6 and factor all potential costs into your financial projections.
- Inquire with the franchisor about the timing and details of the planned "Marketing Royalty" implementation.
- Develop strong operational procedures and compliance protocols to minimize the risk of incurring non-compliance fees.
FDD Citations:
- Item 6: List of fees, including the planned "Marketing Royalty."
Operational & Brand Risks
3 risks identified
2
1
Limited Supplier Options & Potential for Higher Costs
High
Explanation:
- Franchisor mandates specific suppliers or requires approval for many key goods and services, limiting franchisee flexibility and potentially leading to higher costs compared to open-market sourcing.
- This dependence on designated suppliers creates vulnerability to supply chain disruptions, price increases, and quality issues, impacting profitability and operational efficiency.
- The franchisor's significant revenue from required purchases (14% of total revenue) raises concerns about potential conflicts of interest and prioritization of franchisor profits over franchisee success.
Potential Mitigations:
- Carefully analyze the cost of goods and services from mandated suppliers and compare them to market rates. Negotiate with the franchisor for better pricing or explore alternative supplier options if permitted.
- Develop contingency plans for supply chain disruptions by identifying potential backup suppliers and maintaining adequate inventory levels of essential items.
- Thoroughly review the FDD for details on supplier agreements, rebate arrangements, and any potential conflicts of interest. Seek legal counsel to understand the implications of these arrangements.
FDD Citations:
- Item 8: "You must purchase…from a supplier that we designate or subject to our specifications."
- Item 8: "In our last fiscal year…we earned $30,447 in revenue from required purchases…and $255,096 in rebates, representing 14% of our total revenue."
Dependence on Franchisor-Affiliated Suppliers
High
Explanation:
- The franchisor mandates the use of its affiliate, Here's Your Sign, LLC, for signage and vehicle wraps, creating a potential conflict of interest and limiting competitive pricing.
- This dependence on an affiliated supplier raises concerns about transparency and potential overcharging, impacting franchisee profitability.
- Franchisor officers have ownership interests in both Hurts Donut Company and Here's Your Sign, LLC, further exacerbating the conflict of interest.
Potential Mitigations:
- Compare pricing from Here's Your Sign, LLC with other signage and vehicle wrap providers to assess competitiveness. Negotiate with the franchisor for better pricing or explore alternative options if permitted.
- Seek legal counsel to understand the implications of the franchisor's ownership interest in the mandated supplier and any potential legal recourse for unfair pricing.
- Request detailed financial information from Here's Your Sign, LLC to assess its pricing structure and profitability.
FDD Citations:
- Item 8: "You must purchase all of your signage and artwork from our affiliate, Here’s Your Sign, LLC."
- Item 8: "Our officers…own an interest in us and in our affiliate, Here’s Your Sign, LLC."
Lack of Transparency in Supplier Approval Criteria
Medium
Explanation:
- The franchisor does not maintain written criteria for approving alternative suppliers, creating ambiguity and potential for arbitrary decisions.
- This lack of transparency makes it difficult for franchisees to propose alternative suppliers and may limit their ability to secure more favorable pricing or better quality goods and services.
Potential Mitigations:
- Request clarification from the franchisor regarding their supplier approval process and criteria, even if unwritten. Document all communications regarding supplier approvals.
- Present strong, well-documented proposals for alternative suppliers, including detailed specifications, pricing, and quality comparisons.
- Consult with existing franchisees to understand their experiences with proposing alternative suppliers and navigating the approval process.
FDD Citations:
- Item 8: "We do not maintain written criteria for approving suppliers and thus these criteria are not available to you or your proposed supplier."
Performance & ROI Risks
3 risks identified
1
2
Financial Instability of Franchisor
High
Explanation:
- The Illinois Addendum explicitly states that the franchisor is deferring the collection of initial fees due to their financial condition. This raises serious concerns about the franchisor's financial stability and ability to provide ongoing support and resources to franchisees.
- A financially unstable franchisor may struggle to meet its obligations, such as providing training, marketing support, and system updates, which can negatively impact the franchisee's success.
- The franchisor's financial difficulties could also lead to bankruptcy, leaving franchisees with limited recourse and potentially losing their investment.
Potential Mitigations:
- Thoroughly investigate the franchisor's financial history and current status. Request audited financial statements and discuss the franchisor's financial situation with existing franchisees.
- Consult with a financial advisor to assess the franchisor's financial health and the potential risks involved.
- Negotiate stronger protections in the Franchise Agreement, such as performance guarantees or termination clauses that allow for easier exit in case of franchisor default.
FDD Citations:
- Illinois Addendum, Item 5: "The Illinois Attorney General’s Office imposed this deferral requirement due to our financial condition."
Potential for Litigation and Disputes
Medium
Explanation:
- The inclusion of numerous state-specific addenda addressing legal issues, such as jurisdiction, venue, and dispute resolution, suggests a history of legal challenges or disputes between the franchisor and franchisees.
- These addenda highlight variations in state franchise laws and the need for franchisees to be aware of their rights and obligations under these laws.
- The presence of clauses related to waivers, releases, and limitations of claims raises concerns about the franchisor's attempts to limit its liability and restrict franchisees' legal options.
Potential Mitigations:
- Carefully review the Franchise Agreement and all state addenda with an experienced franchise attorney.
- Pay close attention to clauses related to dispute resolution, jurisdiction, and limitations of liability.
- Seek clarification from the franchisor on any ambiguous or concerning legal provisions.
FDD Citations:
- Illinois Addendum, Item 2
- Minnesota Addendum, various clauses
- Wisconsin Addendum, Item 2
Trademark Protection and Indemnification
Medium
Explanation:
- The Minnesota Addendum specifically mentions the franchisor's obligation to protect the franchisee's right to use trademarks and indemnify them against any losses arising from trademark disputes.
- This suggests potential vulnerabilities or uncertainties regarding the franchisor's ownership or enforcement of its trademarks.
- Franchisees could face legal challenges or financial losses if the franchisor's trademarks are infringed upon or challenged by third parties.
Potential Mitigations:
- Request documentation verifying the franchisor's trademark registrations and ownership.
- Review the franchisor's procedures for monitoring and enforcing its trademarks.
- Ensure that the Franchise Agreement includes clear provisions regarding trademark protection and indemnification.
FDD Citations:
- Minnesota Addendum: "The franchisor will protect the Franchisee’s rights to use the trademarks...or indemnify the Franchisee from any loss..."
FDD Documents by Year
Download and view official Franchise Disclosure Documents
FDD Year: 2025
Uploaded: 8/26/2025
FDD Year: 2025
Uploaded: 8/9/2025
FDD Documents
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