If you are a franchisor, you must update your Franchise Disclosure Document every year in order to keep selling franchises. The FDD update can be a chaotic, complicated and time-consuming process if you don’t manage it properly. Here are six tips for your FDD update:
1. Know Your Deadlines. Under the Franchise Rule of the Federal Trade Commission, your FDD expires 120 days after your fiscal year end. (If you are on a calendar year, that means your FDD expires on April 30.) In the registration states, the FDD expiration date will vary. It often runs one year from the date of the previous year’s registrations. When the FDD expires nationally, you must immediately cease all sales activity. If the FDD first expires in a particular state, then you must cease all sales activity in that state.
2. Keep A Running FDD Issues List All Year Long. Don’t wait until the update process starts to start identifying changes. You should maintain a list year-round with issues, typos, corrections, questions, business changes, and other items to address in your next FDD.
3. Get Started Early. We recommend you begin the annual update process at least three months before the FDD expires.
4. Plan Your Update Process. With so many details to check and update, it’s crucial to set a process to identify each task that needs to be done, how much time it will take, and who is going to do it. You should work closely with an experienced franchise attorney to determine the process.
5. Alert Your Auditors. Make your auditors know your FDD deadline and are prepared to meet it.
6. Be Prepared For Transition to the New FDD. Your sales team (and other executives) should review a “redline” of the new FDD, showing all of the changes from the previous year, and have a clear understanding of each change. Make sure your sales team is aware of your calendar with issuing the new FDD, so they can try to close deals before the transition. They also need to know which states you plan to file or register the FDD, and any “dark” periods in registration states. Any prospects in the pipeline when you transition to the new FDD must be re-disclosed with the new FDD.