While you are waiting for your business people to gather the information that you have requested, you can move forward with making some of the changes to your FDD. The first items I change are the effective date throughout the FDD, the footer (which I use to designate the brand, date and version of the FDD and whether it is the paper or electronic version) and the state effective dates, which I delete alltogether. For the information that I am waiting on from the business people, I add an @ symbol in the body of the FDD where the information goes. In this manner, I know that my FDD is not completely updated until a computer search of the document reveals no @ symbols. This makes it almost impossible to miss an item that requires updating.
Next I review the Item 2 bios to remove all items that are more than 5 years old, review Item 3 for closed litigation that is more than 10 years old and also review Item 4 for any bankruptcies that are no longer disclosable. In Item 21, I udpate the description of the financial statements and delete any unaudited financial statements that were previously included.
Finally, I delete all the exhibits that I know will be replaced and mark the location with the @ symbol, such as the list of current and list of former franchisees and the audited financial statements.
Next week, we will comple our due diligence and follow-up on requested information that has not yet been received. This is when the real tooth pulling begins!
Monday, January 19, 2009
Time to Request Information From the Business People
At year end, you should have pulled together the reports that you will need for your system statistics, so this week it’s time to alert the relevant business people about all of the additional information that will need to be updated in the FDD. I find it helpful to cut and paste the relevant portion of the FDD into the email in which I request the information. This helps the business people understand the context for the information. When I request this information, I focus on the following areas:
Item 1 – update on system statistics for affiliated franchise programs
Item 2 – update on comings and goings in the managerial ranks
Item 3 – update on pending litigation, particularly challenging to obtain from predecessors
Item 4 – update on pending bankruptcies
Item 5 - range of initial franchise fee during last year
Item 7 – update on initial investment costs
Item 8 – update on revenues from restricted purchases – this is difficult to obtain while the accounting group is trying to close out their year and work with the auditors (they experience work compression must like we do)
Item 11 – update on the outline for the training program
Item 11 – update on the use of the advertising funds (again challenging while the accounting group is trying to close out their year)
Item 11 – revised Table of Contents for the Operations Manual
Item 19 – updated financial performance representation information
Item 20 – updates for all 5 tables and a list of current and list of former franchisees
I follow-up on these requests on a weekly basis, to make sure that my requests remain high on the priority list.
Next week we will move on to making changes in the actual document. As always, if you would like an Excel spreadsheet that identifies each action item, send me an email request.
Item 1 – update on system statistics for affiliated franchise programs
Item 2 – update on comings and goings in the managerial ranks
Item 3 – update on pending litigation, particularly challenging to obtain from predecessors
Item 4 – update on pending bankruptcies
Item 5 - range of initial franchise fee during last year
Item 7 – update on initial investment costs
Item 8 – update on revenues from restricted purchases – this is difficult to obtain while the accounting group is trying to close out their year and work with the auditors (they experience work compression must like we do)
Item 11 – update on the outline for the training program
Item 11 – update on the use of the advertising funds (again challenging while the accounting group is trying to close out their year)
Item 11 – revised Table of Contents for the Operations Manual
Item 19 – updated financial performance representation information
Item 20 – updates for all 5 tables and a list of current and list of former franchisees
I follow-up on these requests on a weekly basis, to make sure that my requests remain high on the priority list.
Next week we will move on to making changes in the actual document. As always, if you would like an Excel spreadsheet that identifies each action item, send me an email request.
Friday, January 9, 2009
Time to Establish Your FDD Update Plan
Now that the holidays are behind us for another year, it’s time to hit the ground running for updating your FDD, if you have a December 31 fiscal year end. This is the time to establish your plan and timeline for updating the FDD, leaving plenty of time to prepare your state filings. I generally plan each step in the process, but the general categories to consider include circulating the FDD for comment, sending the Background/Litigation/Bankruptcy Questionnaires to the Item 2 people, sending the Salesperson Disclosure Form to your franchise salespeople, requesting specific information for the FDD (such as revenues from restricted purchases, financial performance representation data, Item 20 charts and lists, etc.), incorporating all comments and circulating a redlined FDD for final comments, incorporating new audited financial statements and obtaining the auditor’s consent, and creating the final clean and redline of the FDD for filing with the states. In the coming weeks, I will identify the more specific action items that must be addressed. If you would like an Excel spreadsheet that identifies each action item, send me an email request. Until next week, happy updating!
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