Item 20

Item 20 always is the most challenging item to update. No matter how careful you are, the numbers never reconcile the first time you review them. Here is a list of the reconciliations that I perform to make sure that everything matches.

Table 1 – Double-check the math to make sure everything adds up correctly. This really should be left to the end, because the numbers may change based on what the other tables reveal.

Table 2 – Make sure the numbers in the table match the list of franchisees that have transferred. When you pull the transfer list, make sure that you include the state in which the store was located, not just the state where the former franchisee now lives. Otherwise, the state numbers will be off. For the list of former franchisees, I break the list into 3 categories: transferred stores, terminated stores that were open, and terminated franchise agreements for stores that never opened. By breaking these lists out, it is much easier to reconcile the numbers in the tables.

Table 3 – I start by double-checking the math, to make sure everything adds up correctly. I then compare the ending state totals to the list of current franchisees, to make sure that the numbers match the list. On the first time through, the numbers generally will not match and you will need to go back to reconcile the discrepancies and find the mistakes. For the list of current franchisees, I break this list into 2 categories: currently open stores and franchise agreements signed but store not yet open. This makes it easier to identify where the discrepancies in the table come from.

Table 4 – I also start here by double-checking the math, to make sure everything adds up correctly. I then compare the ending state totals to the list of company owned stores, to make sure that the numbers match the list. Note that this list is pulled only for reconciliation purposes, it does not go in the FDD.

Table 5 – For the franchise agreement signed but store not yet open, I reconcile the numbers against the list that will be included with the current franchisee list. For the other 2 columns, I obtain the information needed from the business people in charge of these areas. These 2 columns are projections of what is expected this fiscal year, so estimates are needed rather than absolute precision.

Your Item 20 will generally take more time to complete than most other areas of the FDD, so once everything matches, the hardest part is done! Good luck reconciling!

Sending BLBQs, SDFs, and the FDD

I have spent the last few weeks studying for the Georgia one day attorneys exam, and therefore have neglected my blog. Yup, after 18 years of admission in Maryland, Georgia still wants me to take an exam. Now that the bar exam is over, and hopefully won’t have to be repeated :-), I can return to my regularly scheduled programming.

I will pick up where I left off, but a little behind schedule on the FDD updating process. Once each year, I circulate the Background/Litigation/Bankruptcy Questionnaire (“BLBQ”) to each person listed in Item 2, to make sure that no information has changed. I have each person review their questionnaire and sign and date if all information remains true. For any new person in Item 2, the BLBQ should have been sent out as soon as they were hired, so even they should have one to review.

I maintain my BLBQ form as a pdf form, so that I can email the blank form to each new hire that will be listed in Item 2. The new hire can then either type his or her responses in the form, before printing and then giving it back to me, or he or she can print the form and handwrite the requested information. When I receive a BLBQ from a new Item 2 person, I type the responses into the form and save it for use next year. In this manner, the Item 2 person does not have to provide the same information over and over again in later years. I simply email that person’s form to them already completed, so only changed information need be provided. The business people appreciate this time saving measure.

I also use the same process for the Seller Disclosure Form. In addition to circulating the Seller Disclosure Forms, I request that each salesperson also review and sign off on any form of policy that the company applies to the salespeople, such as an earnings claim policy or policy restricting investments in franchisees. This reinforces the company’s commitment to these policies.

Finally, I also circulate the disclosure portion of the FDD to each Item 2 person, requesting that each person review the FDD to determine if any information has changed. I generally allow 2 to 3 weeks to get comments back to me.

Next week, I’ll tackle the challenges of Item 20!