Retailers have moved 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. Accounts are all a bustle preparing for tax season. And YES, franchise attorneys, including myself are getting ready, too. Franchisors are required to update their Franchise Disclosure Document (FDD) 120 days from the close of their fiscal year. This mandate to update comes from both the Federal FTC Rule and State law. A FDD update includes input of the previous year’s audited financials, listings of outlets, and other previous year data.
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.
- 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. If you have an advertising fund, determine how the advertising funds were used. Call your accountant and get a start on your audited financials.
- 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 as of the ending of the previous fiscal year including the number of franchise outlets that transferred, opened, and closed. Consider any litigation in the previous year. Did you file a claim against a franchisee, did anyone file a claim against you, and are there updates from the previous years’ litigation/arbitration. Did you negotiate any purchase arrangements for your franchisees? Identify any special concessions or waivers. Did you waive or discount any fees or franchisee obligations?
- Validate Your Information. Do a read through of the FDD and check with management about any changes or updates. Has a management or trainers been added to your staff. Check with your staff to ensure no events of convictions or bankruptcies. Are the initial investment cost accurate with today’s cost for insurance, rent, equipment and other items?
- Plan for the New Year. Make a list of outlest you plan to open in the upcoming year. Give it your best guess. A list of projected openings must be included in the FDD; so, be as realistic as possible. Discuss plans for the upcoming year. Prevent having to make changes to your FDD by including your New Year initiative into your FDD now.
CALL OR EMAIL US TO LEARN ABOUT HOW WE CAN HELP COMPLETING YOU ANNUAL FDD UPDATE (513)400-3895 OR MBGETTINS@GETTINSLAW.COM