The start of the new year marks the start of franchise renewals for franchisors. Franchisors are required to annually update their Franchise Disclosure Document and, in the 14 registration states, annually file and register the franchise offering with the state, before they can offer or sell franchises. For franchisors with fiscal year ends of December 31st, federal and state laws require the Franchise Disclosure Document be updated and filed (in the states that require filings) typically 120 days of the end of fiscal year end. Some states may require an earlier filing. However, if you do not update and file (where required) the Franchise Disclosure Document within 90 days of the end of the fiscal year end, some of the franchise registration states will require the franchisor to include updated, interim financial statements with the annual report.
We are gearing up to prepare updated Franchise Disclosure Documents for franchisors nationwide. As you start preparing for your franchise renewals, here are our top 10 franchise renewal tips for 2017:
- Start Now: It may seem obvious, but start working on your Franchise Disclosure Document updates now while there is still ample time and opportunity. If you wait until spring, you may have to drop everything to get your updates done on time. Plus, starting early allows you to plan around company or industry conventions, special events, and any other business plans you or your team may have. Starting now will also give you time to track down information from other personnel in your company, which will be required to prepare the updated Franchise Disclosure Document.
- New Franchisee Programs: You should consider any new programs your company may offer franchisees starting in the next year, such as incentive programs and reimaging and remodeling programs for outlets, so they can be described in the Franchise Disclosure Document and incorporated in franchise agreements or through addenda to franchise agreements.
- Gather Ideas From the Year: Gather your ideas from experiences of the past year. What worked and what didn’t work last year? Your legal staff may have run into issues with the franchise agreement, or perhaps your salespeople identified provisions they would like to change or that could increase the sales of franchises. Also ask your attorney about any changes in the law and industry best practices.
- Crunch the Numbers: Review the financial condition of the company and, if applicable, any parents that are guaranteeing its performance. Ask your attorney how your financial situation will affect the availability of exemptions based on net worth, or any financial assurance conditions that might be imposed by a state, like escrows or fee deferrals. Finally, start looking at how last year’s performance by your units will affect your Item 19 disclosure.
- Run the Reports: Much of the year-end information required in the Franchise Disclosure Document, particularly Item 20 and the franchisee lists, is easier to capture now than months after the fact. By preparing that data now, you can resolve any issues or discrepancies while 2016 is still fresh in mind.
- Be First in Line: State examiners receive hundreds of renewal applications in late March. Why not file sooner and get your Franchise Disclosure Document on the top of the stack? By renewing even a few days early, your review time may be reduced by several weeks, meaning you can get back to selling franchises faster.
- Call Your Auditor: If you have not already done so, get in touch with your accountant to ensure your audit is prepared on time (or early – see #6 above).
- Update Marketing Materials: Renewal season is a great time to update outdated marketing materials (or prepare new ads) and file the advertising with the states. It is also a good time to give your website a thorough check-up. Do not let a state examiner review your online content before you do!
- Set Your Sales: Coordinate your target filing date with your sales staff so that transactions can be closed in advance of any “dark” period you might experience while waiting for a state to approve your Franchise Disclosure Document.
- E-Filing: A few states (Minnesota, Rhode Island, Washington, and Wisconsin) offer the option to e-file certain types of franchise filings. Though each state’s e-file application varies and there are certain limitations, over time e-filing should reduce costs, reduce state review time, and “green up” the renewal process.
Contact us or your franchise attorney to prepare your annual renewal for 2017.