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Question: Will you please explain the annual updating process for my Franchise Disclosure Document?
Answer: This is the time of the year when all franchisor Franchise Disclosure Documents need to be updated. The Federal Trade Commission’s Franchise Rule requires that all franchisors update their FDDs within 120 days of their fiscal year end. However, some states have shorter timelines, such as Hawaii (March 31) and California (110 days following the FYE). Double-check all of your registration dates and filing requirements to avoid a lapse in a state registration that may suspend franchise sales in that state.
Remember that Item 21 of the FDD requires franchisor audited financial statements. Contact your auditor now so that you can get your audit report as soon as possible. Stress to your auditor that your registration deadlines are fixed by state and federal law and that a late audit may cost you franchise sales.
Other items of your FDD may also require updating. Have any management changed? (Item 2) Has there been any litigation or bankruptcies? (Items 3 and 4). Have there been any changes to the fees that franchisor charges? (Items 5 and 6). Have there been any changes to your opening costs based upon outlets you have opened in 2013? (Item 7). Have there been any changes in payments from suppliers or updates regarding officers who own an interest in a required supplier? (Item 8). How were the advertising dollars spent in 2013? (Item 11). Have you added any trademarks in 2013 or know of any new infringers? (Item 13). How many franchise outlets currently operate in each state? Corporate stores? How have other outlets changes in the last year, such as transfers, closures, etc.? (Item 20). All of this data should be updated as of the end of FYE 2013.
If you make a Financial Performance Representation in Item 19, review this carefully using 2013 data. If you do not make a FPR, but 2013 results are encouraging, consider crafting a new Item 19 FPR. If your results form 2013 are disappointing, consider eliminating your Item 19 FPR altogether.
Also, consider all of your advertising and website content to ensure compliance with state advertising laws and regulations. Finally, consider scheduling a franchise sales compliance training seminar for your franchise sales staff. These handy tips will ensure that you have a smooth franchise sales transition from 2013 to 2014. Have a prosperous 2014!
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At Fahey Schultz Burzych Rhodes PLC, we’ve been helping municipalities, franchised businesses, employers, and more with their legal needs since 2008. We’d love to learn how we can help you, too.