The start of a new year signals the official launch of renewal season for franchisors nationwide. Renewal season marks the critical time in which franchisors must update their Franchise Disclosure Document (“FDD”). Though renewal season can be a stressful and time-consuming process, it can also be used as an opportunity to do a bit of spring cleaning with your FDD and hit the ground running with strength and confidence in 2025.
Financial Reporting: Start Today
Delays in preparing audited financial statements are often the biggest hurdle in meeting renewal deadlines, which for most franchisors is April 30th. If you haven’t already, contact your CPA immediately to begin this process. For emerging franchisors in their second and third years, it is critical to ensure compliance with “phase-in” financial requirements. Collaborating with an experienced franchise attorney can help ensure compliance with -specific state and federal financial reporting rules.
Mandatory FDD Updates
Certain sections of the FDD require annual updates due to the passage of time. Such changes include:
- Financial Statements: Updated financial statements including the most recent fiscal year must be included.
- Item 19: Performance data, if used, must be updated reflect 2024 operations.
- Item 20: Overall system structure, i.e. number of company owned and franchised locations, transfers, and terminations, must be updated to include 2024.
Working with an experienced franchise attorney ensures these updates are accurate and compliant with federal and state franchise regulations.
Address Key Changes
Evaluate updates driven by events from the previous year:
- Corporate Structure (Item 1): Changes in affiliates, offices, or regulations.
- Leadership (Item 2): Additions or departures in the leadership team.
- Legal Matters (Items 3/4): New litigation or bankruptcy disclosures.
- Initial Investment (Item 7): Adjustments for inflation, labor, or supply chain impacts.
An experienced franchise attorney can help identify and incorporate these changes and help you maintain state and federal compliance.
Strategic Enhancements
Beyond the required updates, this is your opportunity to implement system and process changes that will allow your franchise system to become more efficient. Identify roadblocks from the previous year and assess areas for improvement, such as training programs and system wide marketing effectiveness.
However, try to avoid unnecessary changes to foundational elements like royalty rates or territory sizes unless justified. A seasoned franchise attorney can guide you on which strategic adjustments will deliver the most benefit without creating unintended legal complications.
Renew with Confidence
Renewal season isn’t just about updating your FDD—it’s an opportunity to strengthen your franchise system. Partnering with an experienced franchise attorney will ensure your updates are thorough, compliant, and strategically beneficial.
If you have questions about the franchise renewal process or need assistance preparing your FDD and state registrations, then reach out to the experienced attorneys at BHMK Law today.
Happy renewal season!
