One of the most important aspects of becoming a franchisee is the signing of the Franchise Disclosure Document or FDD. This document is a crucial piece of the puzzle in the formation of a new franchise and contains valuable information about the franchisor.
You may be wondering when to update your FDD. As a general rule of thumb in the world of business, the new year ushers in new budgets and objectives and is a great time to review and update your current operations. By being prepared, you can avoid a lot of the headaches that come with updating your FDD.
What Is a Franchise Disclosure Document?
The Franchise Disclosure Document provides prospective franchise owners with all of the information they need to make an informed decision about the franchisor, franchise system, and agreement.
There are usually 23 items in an FDD, including:
- Item 1: A description of the franchisor company and its history.
- Item 2: The biographical and professional information about the franchisor and its key partners.
- Item 3: Any relevant current and past criminal and civil litigation about the franchisor and its management.
- Item 4: Information about the franchisor and any management who have been through bankruptcy.
- Item 5: A breakdown of the initial fees and the range and factors that determine those fees.
- Item 6: A description of all other recurring fees or payments.
- Item 7: All of the expenditures required by the franchisee to make to establish the franchise.
- Item 8: Restrictions on sources of products and services.
- Item 9: The obligations the franchisee has agreed to.
- Item 10: The terms and conditions of any financing agreements offered by the franchisor.
- Item 11: The services that the franchisor will provide to the franchisee (assistance, advertising, computer systems, training, etc.)
- Item 12: The description of any exclusive territory and modifications.
- Item 13: Information about the franchisor’s trademarks, service, and trade names.
- Item 14: Information about patents, copyrights, and proprietary information.
- Item 15: The obligation of the franchisee to participate in the actual operation of the business.
- Item 16: Any restrictions on the goods and services that the franchisee can offer customers.
- Item 17: When and whether your franchise can be renewed or terminated and what your rights and restrictions are in franchisor disagreements.
- Item 18: The payments made to public figures that are used by the franchisor.
- Item 19: The franchisor can choose to disclose information on unit financial performance.
- Item 20: The locations and contact information of existing franchises.
- Item 21: Audited financial statements for the past three years.
- Item 22: All of the agreements that the franchisee will be required to sign.
- Item 23: Prospective franchisees are required to sign a receipt upon receiving.
When to Update Your FDD
Once you’ve established your FDD, you may be wondering how often you’ll have to review and update it. While state laws vary, your registration may be valid 90 to 120 days after your fiscal year end, or the date may be tied to your previous renewal date anniversary. Federal law requires that FDDs be updated within 120 days after fiscal year end.
It’s a good idea to keep track of your franchise registration deadlines, obtain audited financial statements, talk to your operations and salespeople about changes, update your manuals, work on Items 19 and 20, review your franchise advertising, and review your insurance coverage.
If you’re looking for assistance with your Franchise Disclosure Document or wondering when to update your FDD, Accurate Franchising can help with all of your franchising needs.
Contact us today to learn more about how Accurate Franchising can help you understand your Franchise Disclosure Document and when to update your FDD.