The FTC requires a franchisor to update its franchise disclosure document (FDD) within 120 days of the close of its fiscal year. The April 30th deadline is fast approaching for franchisors who completed their fiscal year on December 31st. At the end of the 120 day period, the franchisor may only offer and sell using the updated FDD. In addition, many states franchise renewal laws also work off the same fiscal year deadlines.
By March, franchisors should be near completing the process gathering the information necessary to update the FDD and submitting that information to their legal counsel. Below are 3 quick tips franchisors should follow to ensure they meet the deadlines:
(1) Keep in contact with your accountants or finance division and remind them that the audited financials must be completed before April 30th. Many delays in updating an FDD will be the result of auditors not having adequate time to prepare the financials. For franchisors filing state registration renewals the deadline for the audit may be sooner. Some states require that renewal registration applications be filed days or weeks in advance of the 120 day deadline.
(2) Begin compiling the additional information needed to update your FDD in an organized and complete manner. This includes changes to executive personnel, disclosure of new ligitation, and current franchise sales data for the 2011 year.
(3) Make sure that the outside or in-house counsel responsible for overseeing the final updates or filing state renewals are provided with accurate draft documents and other information with ample time to review, revise, comment, and finalize. Seasoned franchise counsel should have a streamlined system in place for handling updates and renewals. The starting place to this process, however, is getting accurate information from the franchisor.
Failing to update or file renewal registrations on time can impede a franchisor's ability to offer and sell. Therefore, it is important to get a head start on the process to give all parties involved adequate lead time.