Wild Birds Unlimited: should Morgan open a store?

Proceed, but not on the 10%-down loan Morgan was first offered.

1. The system holds together. Over 2023–2025, 0.8% of franchised stores a year closed or left (8 exits in 1,013 store-years), against 1.7% to 7.7% at four other owner-run specialty retailers. Its franchisees' SBA loans charged off at 0.27× the rate of franchise loans made in the same years. The audit opinion is clean, and Items 3 and 4 disclose no litigation and no bankruptcy.
2. A new store is not the median store. Stores open at least two years had median 2025 sales of $780,955 and cleared $114,066 before debt service and the owner's pay. Stores opened since 2020 cleared −$1,723 in their first full year, $12,581 in the second and $39,670 in the third (medians). Item 7 budgets operating funds for 3 months.
3. The ramp decides the financing. With $134,000 down and a $200,000 loan, the base case covers its loan from year 3 and returns Morgan's sunk cash in year 7. At 10% down, the base case alone uses up the $89,000 reserve and the store does not cover its loan until year 4.

Walk if the owners who opened in 2021–2023 report year-3 sales well under $462,650 (the level at which the store covers a $200,000 loan), or Morgan cannot hold the full $89,000 reserve at closing.

In the FDD Read alone, this view rests on reasons 1 and 2 and names the funding gap; the Deal Review sizes it (reason 3, sections 9–14).

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.

• Up front: $40,000 initial fee and $5,000 training; $48,846–$49,246 in all goes to the franchisor before opening. Total investment $231,635–$376,392.
• Ongoing: 4% royalty and 1% ad fund on gross sales (the fund can rise to 2%), at least 2% on local advertising (8%–10% recommended in year 1), and a $350 monthly technology fee ($4,200 a year).
• In dollars: the 5% royalty and fund is $16,373 a year at the median first-year store and $39,048 at the system median.
• Term: 10 years, then unlimited 5-year renewals for $500 each, on the then-current agreement.
• Territory: not exclusive. The franchisor will not put another Wild Birds Unlimited store in your Designated Territory but keeps online sales and every other channel.
• Guaranty: your spouse signs a personal guaranty of the franchise agreement, even without owning any of the business.
• Leaving: transfer fee $20,000 (half the current initial fee) plus the buyer's $5,000 training; 2-year non-compete in your territory and within 10 miles of any other Wild Birds Unlimited store; disputes heard in Indiana.
• Reservation Agreement: $10,000, non-refundable, holds a territory for 6 months.

Source: FDD cover page and state risk page; Items 5, 6, 7, 12 and 17.

345 stores at the end of 2025 (344 franchised, 1 company-owned), up from 333 franchised at the start of 2023: 20 openings, 8 exits and 44 transfers to new owners in three years. 14 franchise agreements were signed but not yet open, and 12 openings are projected for 2026. Growth is slow; exits are rare.

Exit = termination, non-renewal or ceased operations, divided by franchised stores at the start of the year. No other franchised wild-bird retailer files an FDD, so the comparison is owner-run specialty stores that carry inventory. Bricks & Minifigs grew from 51 to 217 franchised stores over the period, so many of its stores are too young to have closed.

Source: Item 20 Tables 1, 2, 3 and 5 of each system's 2026 FDD (Kilwins and Petland issued April 30, 2026; Bricks & Minifigs April 8, 2026; HobbyTown May 6, 2026).

Revenue grew 18.2% in two years, and royalties were 67.3% of it in 2025. The negative equity comes from a 2024 buyout, not losses: an employee stock ownership plan bought 30% of the shares for $10,636,292, funded by a $5,000,000 bank note (repaid in full in December 2025) and a $5,636,292 note to a stockholder at 7.5%, interest-only, due December 31, 2028. That note is 1.36× 2025 operating cash flow and costs $422,722 a year in interest. Retained earnings are positive at $6,993,969. The audit opinion (Katz, Sapper & Miller, LLP) is unqualified, with no going-concern paragraph.

Read: a profitable franchisor that can support its stores. The one date to watch is the 2028 maturity.

Source: Item 8 and Exhibit G, audited consolidated statements and notes.

• In: 326 U.S. franchised stores open at least 24 months for sales; the 310 of them that sent P&Ls for cash flow. Store ages run from 1 to over 45 years.
• Out: the 8 stores that closed in 2023–2025, Canadian stores, 5 small-format stores and stores that closed temporarily. The new-store tables count only stores still open at December 31, 2025.
• "Owner's discretionary cash flow": sales less cost of goods and operating expenses (royalties included), with owner's wages, auto, depreciation, owner's insurance and retirement added back. It is before debt service and before paying the owner.
• Skew: 40.8% of stores beat the average sales of $852,550, so plan on the median ($780,955), not the mean.
• New stores: median first-12-month sales were $327,466 (33 stores), 41.9% of the system median; second-12-month $378,576 (28 stores). 17 of 32 first-year stores had zero or negative cash flow.
• Costs: median cost of goods 47.02% of sales (mature stores); first-year wages 15.52% and advertising 7.23%.

Item 19 says written substantiation is available on reasonable request. Ask for it (section 8).

Source: Item 19, Schedules 2A, 2D, 3A–3C, 4A–4C.

SBA loans to Wild Birds Unlimited franchisees approved in fiscal 1991–2020 charged off 4 times among 98 resolved loans. At the charge-off rates of all franchise loans approved in the same years, about 14.9 would be expected: 0.27×. A gap that size is very unlikely to be chance (p < 0.001).

The limit: that record is old loans. 49 of the 165 loans were approved in fiscal 2021 or later, only 7 have resolved, and they average $394,349, above Item 7's $376,392 high for a new store. Ask a lender what those loans financed (resales, second stores, real estate).

Source: SBA 7(a) and 504 FOIA loan files as of June 30, 2026; method on the methodology page.

1. Three months of funds for a three-year ramp. Item 7 budgets 3 months of operating funds; the median new store does not clear $39,670 before debt until its third year.
2. The new-store figures are survivors. The 8 stores that closed in 2023–2025 are in none of the Item 19 tables.
3. Your spouse is personally liable for the franchise agreement.
4. Part of what you buy pays the franchisor. Approved suppliers pay it 1%–10% of their sales to franchisees ($2,550,544 in 2025), and technology and the online store brought in $1,634,348: together 18.8% of its revenue.
5. A $5,636,292 note to a stockholder falls due December 31, 2028. Covered today by operating cash flow; ask how it will be repaid.
6. Some franchisees signed confidentiality clauses (Item 20), so some owners may not talk to you.

Source: Items 7, 8, 19, 20, 21 and the state risk page.

1. Owners who opened in 2021–2023 (Exhibit F): your year-3 sales and cash flow; how much you put in beyond Item 7; the month cash flow turned positive.
2. Former owners of the 8 closed stores: what happened, and what it cost you to close.
3. Franchisor: the store-level data behind Schedule 4C, including the stores that closed.
4. Franchisor: Item 5 shows 2025 initial fees of $5,000–$20,000 only. What did first-store buyers pay?
5. Franchisor: how the $5,636,292 note due in 2028 will be repaid or refinanced.
6. Lender: what the 49 loans since fiscal 2021, averaging $394,349, financed.

Morgan Ellery (fictional), 54, a regional operations manager leaving a corporate job. $200,000 in savings and $310,000 in a 401(k). Her spouse's salary and health cover carry the household, so the store need not pay her anything for three years. One store of about 1,450 sq ft in a strip center, rent $6,000 a month. Her tests: no more than $150,000 of her own cash at risk; the store carries its own loan from year 3; her cash back within the loan's 10-year term. Her lender's first term sheet asked for 10% down.

Morgan's 40.1% is well above SBA's 10% minimum equity for a start-up. $89,000 of the project is reserve (Item 7's $58,000 plus $31,000); the other $45,000 of her cash is sunk into the build. The 10.5% rate is an assumption until a lender quotes.

Source: Item 7 (new franchise); the plan column and all buyer facts are the sample's assumptions.

Owner's discretionary cash flow, on Item 19's definition. Debt service on the $200,000 loan is $32,384 a year; what is left after it is Morgan's income. Year 1 is the first full calendar year; the opening months before it are funded by Item 7.

• Base: Item 19's new-store medians for years 1–3, then a straight line to the bottom-half mature median ($62,270) by year 5.
• Upside: the new-store means for years 1–3, then a straight line to the system median ($114,066) by year 5. The first-year mean is below the median because a few stores lost heavily.
• Downside: the base case, one year late.

In the base case Morgan earns $7,286 from the store in year 3 and $29,886 in year 5. The store is a five-year build before it is an income.

Source: Item 19 Schedule 4A–4C for years 1–3 and the end points; years 4–5 and the loan terms are the sample's assumptions.

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.

Sales are the variable that matters. Item 19's own cost ratios leave 25.23% of each sales dollar (100% less 47.02% goods, 4% royalty, 1% ad fund, 15.52% wages and 7.23% advertising). The first-year medians then imply $84,343 of costs that do not move with sales. That reproduces Item 19's second-year median within $1,409 ($11,172 against $12,581) and the mature median within $1,374 ($112,692 against $114,066). Each $10,000 of sales moves cash flow by $2,523.

The store covers a $200,000 loan at $462,650 of sales and shows the 1.25× coverage many lenders look for at $494,739. The base case's year-3 cash flow implies $491,529. That is the number to test on the validation calls.

Source: Item 19 Schedules 2A, 2D, 3A–3C and 4A–4C; the linear cost model is the sample's.

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.

• Before debt: the store breaks even at $334,295 of annual sales. The median first-year store sold $327,466.
• After debt: base and upside turn positive in year 3 (month 25 on annual figures); the downside in year 4 (month 37). September and October are the slowest months (5.88% and 5.42% of annual sales), so cash is tightest each autumn.
• Cash the ramp uses: $53,910 by the end of year 2 in the base case, $51,598 in the upside, $88,017 by the end of year 3 in the downside.
• Reserve: Item 7's $58,000 plus $31,000 makes $89,000, enough for the downside.
• Payback of the $45,000 sunk: base year 7, upside year 5, downside year 11, after the 10-year loan is repaid.

Source: Section 10 scenarios; Item 19 Schedule 2E for the months.

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.

Choose the 40.1%-down loan. At 10% down the base case alone needs more than the $89,000 reserve and does not cover its loan until year 4. Both structures cost the same $334,000; the difference is how much of the ramp is borrowed. Paying the equity from her 401(k) through a rollover (ROBS) would keep her savings liquid, but it puts retirement money behind a store whose downside pays back in year 11 and adds a C corporation and plan administration. A home-equity line would add a second payment during the ramp. Neither is recommended.

Against Morgan's tests: $134,000 at risk, under her $150,000 limit; the store carries its loan from year 3 in the base and upside cases; her sunk cash comes back in year 7 in the base case, inside the 10-year term. The downside fails the last test, which is why the walk-if line in section 1 exists.

Source: Section 9 project cost and reserve; loan terms are the sample's assumptions.

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.

1. Landlord, improvement allowance. Each $10,000 cuts the loan by $10,000 and debt service by $1,619 a year. $10,000 lifts base year-3 coverage from 1.22× to 1.29×, past the 1.25× lenders look for.
2. Landlord, free rent. 4 months at $6,000 is $24,000 the ramp does not use.
3. Franchisor, the spouse's guaranty. Ask to cap it by amount or years. Often refused; free to ask.
4. Franchisor, the Reservation Agreement. The $10,000 is non-refundable. Sign it only with a site under letter of intent, or ask for a refund if no site is approved within 6 months.
5. Franchisor, the first-store fee. Use the 2025 collections of $5,000–$20,000 (validation question 4) to ask what first-store buyers paid.

These projections were prepared by Don Drummond, CPA, from information you provided and public filings. No assurance is provided on them. Actual results will differ, and the differences may be material.