Thursday, January 17, 2013

Annual Franchise Renewals

If you are a franchisor, you are (or need to be) aware that it is, for most franchise systems, franchise renewal season. It is that time of the year when you are required to update your FDD with any material changes and to include a new audit for 2012. It is important to note that for most franchise systems, if you do not update your FDD you will be unable to offer or sell franchises after April 30, 2013, and as early as March 31, 2013 in some registration states.

This post is meant to give some helpful tips on preparing for this hectic time of the year.

·         Order your audit early –as in today. In reality, we recommend that your audit be ordered no later than January 31, 2013. This is because audits can take time and you will not have a completely updated FDD without an audit.

·         Between now and early February, sit down with your sales team and/or those overseeing the franchise system to discuss what material changes you would like or need to make to the FDD and franchise agreement. This can be anything from a change in royalties to how training is conducted. If you have found that you are continuously waiving a “requirement” with each new franchisee, you will want to talk to your franchise attorney about whether or not that should be a material change. A good place to start is with your Items 5, 6 and 7 and make sure that all the amounts stated are still true and accurate.

·         Take time to accurately fill out Item 20. This is often left to the last minute, but the 5 required tables are important and should accurately reflect the status of the franchise system.

·         Review any ancillary agreements you require your franchisees to sign. According to the FTC Amended Rule, “franchisors are required to attach a copy of all proposed agreements relating to the franchise offering that the franchisor provides or for which the franchisor makes arrangements.” This can include a required lease agreement form, ADA Certification, Personal Guarantees, Confidentiality Agreements, ACH Agreements, and many others. You will want to discuss with your franchise attorney all the agreements you require or provide for your franchisees to determine if they are required to be included in the FDD.

The renewal process can be long and arduous. But if you follow the above tips and take the time early on, the process can be smoother and you will be able to offer and sell without any delay.

Several registration states offer guides and tips in helping you through the annual renewal process.

The California Department of Corporations 
The State of Indiana
The State of Virginia (franchise forms)