The FDD, the franchise disclosure documents the most important tool in franchising it's
the foundation of your franchise offering. It's the primary vehicle that franchisors use to comply
with the franchise laws and regulations and so we're going to get into the basics of the FDD,
what's included in it the FDD disclosure period and even some registration and filing basics.
At the most basic level the FDD is the hub of your franchise offering, so on the one hand you use the
FDD to comply with federal and state franchise laws and on the other it's an instrument that
you give to franchisees so you know franchisees are going to be reviewing the data in the FDD
to validate your franchise and compare it to your competitors, so the FDD itself it's the hub that
really melds together your franchise regulation obligations and your franchise sales activities.
From a franchisor's perspective when you look at the FDD there's a number of things that should be
going on, or are going on. Within the FDD itself you're complying with federal law right, so you're
complying with all the disclosure items that we'll talk about and you're giving information that's
going to be required under the federal franchise rule. You're also complying with state laws and
each state has certain requirements or addendums that are going to be added to your FDD. But also
from a business standpoint everything that's involved in your franchise offering, the initial
franchise fees, the ongoing royalties, territory structures that you grant, whether or not you
offer individual unit franchises or multi-unit that's all laid out in your franchise disclosure
document itself. And so from a FDD development standpoint there's two goals going on, one is
compliance with federal and state law and the other is structuring your FDD so it's competitive
and shows a much more compelling perspective about your franchise offering than your competitors.
Now the items in the FDD, there's 23 items, under the franchise rules they're really sections but
they're called items and the 23 items cover the full disclosure process about who your franchise
company is, who's involved in your management team, the initial fees that a franchisee will
be paying, the estimated startup expenses, supply chain elements, territory structures, the entire
underpinnings of what your franchise offering is about and how they legally relate for prospective
franchisees. Some of the most important items in the FDD, at least from a development standpoint
for the franchisor, it's the initial fees right, so what are your initial franchise fees,
how do they relate to your competitors, do you have multi-unit opportunities where a
franchisee could sign a development agreement. Other fees that's the item 6 is going to tell
information about your royalty structures, all the ongoing fees that a franchisee will be paying,
things that franchisees care about, what's the recurring royalty fee, what are brand
development fund fees and what other technology or ongoing obligations that are going to affect
the franchisee metrics. In item 12 there's disclosures about the territory structures,
what type of territory franchisee will get, whether or not it's exclusive and what exceptions
exist where as a franchisor you may or may not be able to sell within a franchisees territory. One
of the critical items, item 19 is the financial performance representations and so within item 19,
if you're going to share any financial data with a franchisee it's going to have to go in your item
19 and and we'll go into all of these in separate videos and separate materials but at the heart of
the FDD there's 23 disclosure items and they need to comply with the federal and state disclosure
obligations. When do you have to disclose the FDD to your to prospective franchisees? So the FDD
itself is important in the franchise sales process and while there'll be other processes and webinars
you'll be offering to franchisees and information, the FDD itself needs to be provided to a
franchisee not less than 14 days before they sign a franchise agreement or before they pay any fees
to you as the franchisee or so we have that 14-day disclosure period and the important point there is
that 14-day period doesn't start to run until the franchisee signs the receipt page of the FDD, and
if I would go back a second to the 23 items in the FDD, item 23 is the receipts right. So at the end
of the FDD is a receipt page and the franchisee has to sign off on when they received your FDD and
that's going to start your 14-day window. Now how do you count the 14 days? That's important because
in many ways your 14-day waiting period is really 16 days, because the franchisee receives the FDD
signs the receipt page the clock starts to tick on the date that the franchisee signs the receipt
page, but the 14 day waiting period is a full 14 days, so that means you don't count the first day
the franchisee received and signed the receipt page and you don't count the last full day of
the 14-day period, so in actuality the franchisee if you count the day they sign the receipt and the
day they're signing the agreement it's really 16 days. So you have to have a full 14 day waiting
period and then also as a franchisor you need to be aware that there's also a mini waiting period
which is a seven-day waiting period from the date that you give the franchisee a fully completed
franchise agreement so other than items like filling in the blanks with the franchisees name
and information, if in the franchise agreement you include a designated territory for the franchisee
or other items that are very specific to that franchisee there's another waiting period and
there the franchisee needs to have the completed franchise agreement for seven full days before
they sign off. And now you could run the seven-day period with the 14-day FDD period so for example
you disclose a franchisee with the FDD if you know the territory and the specifics of their franchise
agreement you could also disclose to them the completed franchise agreement itself. In terms of
basics your FDD needs to be updated on an annual basis right, so there's a couple of triggers at
a minimum every FDD needs to be updated annually and under the federal rule it needs to be updated
within 120 days from the end of your fiscal year so if your fiscal year as a calendar year and ends
on December 31, that means your FDD needs to be updated by April 30th of each year. But there's
also update requirements if there's material changes in your FDD if things that you disclose
are now different or an event has occurred such as certain litigation you're going to be required
to update your FDD on a more frequent basis. So when does your FDD expire? Well at the most basic
level, 120 days after the end of your fiscal year so if your fiscal year ends on December
31 your FDD is no good as of April 30th and at that point you need to stop selling franchises,
now keep in mind that's under a federal rule in states that have regulation in the franchise
registration states you may have to terminate your franchise sales at an earlier date it
all depends on the state you're in and depends on the status of your franchise registration.