Retailers are moving Christmas ornaments to the clearance aisle and yoga mats to the front of the store. Television channels are airing Weight Watcher® commercials featuring Charles Barkley. Accountants are all a bustle preparing for tax season. And YES, franchise attorneys, including myself are getting ready, too. Franchisors are required to update their (FDD) 120 days from the close of their fiscal year. This mandate to update comes from both the Federal FTC Rule and State law.
If the FDD is not updated within the required time frame, Franchisors are prohibited from selling franchises until the FDD is updated. This period of inability to sell is commonly referred to in the franchising industry as going dark. Going dark can result in prospective franchise deals being delayed and even worse lost, because of the time required to compile and update the FDD.
DON’T GO DARK. Here are some steps to prepare and get your FDD updated timely.
1. Do the Math. One of the biggest tasks in updating the FDD is compiling the numbers. Determine how much of your revenue were derived from franchisee purchases. Determine how the advertising fund dollars were used. Call your accountant and get a start on your audited financials.
2. Reminisce about the Year Gone By. Another big component of the updating is listing information about the previous year. Make a list the franchise outlets including the number of outlets that transferred, opened, and closed. Consider any litigation in the previous year. Visit your vendor/supplier arrangements. Identify any waivers or discounts of fees or franchisee obligations.
3. Jot down your New Year Resolutions. Make a list of outlets you plan to open in the upcoming year. Discuss plans for the upcoming year. Prevent having to make changes to your updated FDD by including your New Year initiative into your FDD now.