Franchise Disclosure Document
Preparing your Franchise Disclosure Document (FDD) is an exciting exercise on the way to becoming a franchisor. First we will obtain and analyze several FDD’s produced by existing and future competitors of yours within your industry to determine what products or services they are offering, what types and amounts of fees they are charging franchisees, and the general scope and focus of their operations.
Once we have researched your competitors, we will share this knowledge with you in detail and work with you to outline your Franchise Disclosure Document and franchise agreement. For this purpose we will use an FDD and franchise agreement prepared by one of our attorneys with many years of experience in the preparation of these materials. Together, in great detail, you and we will describe every aspect of your business operation, including (1) the history of your business, (2) the nature and extent of your services and/or products, (3) the fees you will charge and the manner in which you will be paid, (4) the operational requirements you expect from your franchisees, and (5) many other important aspects governing the relationship between you and your franchisees. Applying the specific details of your business operation to these legal documents requires numerous hours of discussion with you and even more hours of research and drafting by our staff. Once we determine and put into print the details of the franchise system that we have previously agreed upon with you, we will submit these documents to the attorney who initially drafted the original framework of the FDD and agreement. A final review by the attorney will provide us with the documents that can then be filed in states where registration is required and used for the marketing and sale of your franchises. When we have finished this project, your knowledge of your own business and future plans will have multiplied ten-fold.
Should you wish to hire your own attorney to provide the legal framework of these documents, or provide a further review to the finished product, we will be happy to accommodate you and will cooperate fully with your counsel.
Compliance – Consultant vs. Attorney
It is extremely important to compartmentalize the legal and business disciplines involved in this process in order to maximize the benefits of both legal, and business, advice. Consultants should not be used to offer formal “legal” advice, and attorneys should not be used to offer “operational” advice. There will be a slight crossover in each discipline. For example, if a franchise consultant offers suggested wording within your FDD, the attorney must be informed and the wording must be approved in the final legal review.
Very often, entrepreneurs have the perception that the initial meeting with a franchise attorney, who will prepare their Franchise Disclosure Document, will also design their complete franchise system.
Very often, entrepreneurs have the perception that the initial meeting with a franchise attorney, who will prepare their Franchise Disclosure Document, will also design their complete franchise system. A franchise attorney is not a franchise consultant and should not be relied upon for organizational, financial or operational advice. A franchise attorney, if on the receiving end of these type of questions, will usually agree to prepare your Franchise Disclosure Document, however, they will also, in good faith, tell you that this will not guarantee your success of failure as a franchisor. *For example, when a founder engages in a first meeting with a franchise attorney, there are questions and answers with regard to what to charge as the initial franchise fee. Naturally, both parties would expect the other to know the answer. The truth is… neither is qualified to offer an accurate amount to secure the future profitability of your franchise company. Our franchise consulting services will include (15) financial calculations to determine the amount of this initial franchise fee. Each calculation has a line item explanation which relates to the projected revenue, cost of various types of marketing, sales, real estate, training and support, administration and profit objectives. Usually, in the absence of this important consulting service, you and your franchise attorney will default to what your competition is charging and the average franchise fee in your industry. Twenty franchise sales per year at a miscalculation of $10,000.00 per franchise awarded is $200,000.00 in lost revenue.
Negative Result: Founder and franchise attorney select a franchise fee which is fundamentally unprofitable to the franchisor operating system.
*Note: There are 20 similar key organizational, financial and operational calculations and decisions which are fee and non-fee related that must not be overlooked before your first meeting with a franchise attorney. FGP will consult with you on these business process and system efficiencies to ensure a healthy and profitable launch of your franchise system. You must avoid at all costs major fundamental shifts within your Franchise Disclosure Document before you award your first ten franchises.
Registration and Renewals – the Working Part of “Compliance”
Compliance is a single word with multiple meanings. It encompasses the entire area of Franchise Disclosure Document (“FDD”) preparation, marketing and sales procedures, personnel training, record keeping, Registration and Renewals and a myriad of other regulatory requirements.
We also calendar each important registration and renewal event to ensure that no deadline is overlooked and that all documents and materials are prepared and filed in a timely manner. You will be prepared to grant franchises within registration states, which require an application for the right to sell franchises within their state, as well as non-registration states.
Each month you will receive a memorandum requesting specific information that we will enter into your personal web based “Registration File” so that you and we will have complete and continuous access to all of the necessary information. We will also send you a monthly newsletter that will describe new requirements and also remind your employees on a recurring basis of their continuing obligation to your company to be mindful of your company compliance procedures.
We charge a flat fee of $300.00 per month to complete all of your registration and renewal compliance needs. Once we assume these tasks, you can concentrate on the day-to-day business of marketing and recruiting franchisees and operating a profitable business. With FGP providing this service, as the year ends, you only need to obtain your annual audited financial statement.
FGP provides an exclusive in-house franchisor Compliance Program for our preferred clients.