Tips for a More Successful Franchise Renewal Season

susan_grueneberg.jpgAs spring approaches, most people look forward to relief from the long winter’s cold and the advent of new life. This annual renewal stands in stark contrast to the specter of renewal season in franchising. Each spring, franchisors with a December 31st fiscal year end face the sometimes Herculean task of updating their disclosure documents to reflect developments during the year just ended.

Since most franchisors have a December 31st fiscal year end, and many are interested in expanding in states that regulate the offer and sale of franchises, this also means that they have to file renewal registration applications with those states.  Even if expansion is not on the horizon, a franchisor may want to keep its registration in a state active in case there is a transfer of a franchise, or a franchisee is coming up to the end of its term.  The states in which some type of filing is necessary are California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Rhode Island, South Dakota, Virginia, Washington and Wisconsin.

With so many companies planning to make these filings, the state agencies charged with regulating the offer and sale of franchises can be overwhelmed with applications.  By necessity, this work overload causes delays in responses and frustration for all parties involved.  Of course, franchisors do not want delay in sales activities.  But this is not just a franchisor-related problem.  Franchisees also experience frustration if they can’t proceed with the sale process.  Financing can fall through.  Locations can be lost.  Partners can lose interest.

Is there any way to make this process smoother and more efficient?  Over the years, we have developed various tips to increase the odds that annual updates and renewals will be less disruptive.

Start Early to File Early.  Most franchisors file their renewal registration application during the last half of March.  This creates the logjam in states that review these applications that you want to avoid.  Don’t get caught in traffic!  Begin your update process as soon as possible after year end.  Better yet, start getting organized in December.

Develop Information Gathering Systems.  Don’t wait until you are faced with hard filing deadlines to figure out how to assemble everything necessary to update your Franchise Disclosure Document.  Set up systems to gather and sort information such as lists of franchisees, business addresses and telephone numbers arranged alphabetically by state and, within a state, alphabetically by city name.  Delegate responsibility for compiling specific information to various individuals in the company who can access it most readily.

Put Your Auditor on Deadline.  If you can schedule your audit earlier in the year, your financial statements will likely issue earlier.  Negotiate a schedule in December and follow up to make sure deadlines are being met.  Delay in the issuance of audited financial statements is often the most important factor in the timely preparation of annual updates and filing renewal registration applications. 

Legal and Accounting Updates.  Keeping current with developments in legal and accounting issues will save time in preparing annual updates.  For example, FASB accounting standards are changing to adjust when initial franchise fees are recognized beginning in 2018 for public  companies and 2019 for privately-owned companies.  This will be reflected in audits issued in 2019 for public companies and 2020 for privately-owned companies.  If you haven’t already prepared for this, you should start.

Know What Your Regulators Want.  States vary quite a bit on how they want documents filed.  Some only permit online filing; others permit it but document sizes can cause problems.  Don’t wait to upload documents until 11 p.m. on the day they are due.  If you run into problems, there will not be anyone at the state to help you.  Other states only allow paper filing; some prefer paper and CD-roms.  Check the website of states in which you are filing – often there are tips on how to file.

Be Alert to Changes All Year Long.  Keep a running electronic file on your desktop to store thoughts you have throughout the year to improve your franchise system and your Franchise Agreement.  Encourage your reports to do the same.  And make sure you are working with a lawyer who is tracking legal developments in the field so that it is easy and economical to go over any changes that can improve your contracts.  Case in point – many Franchise Agreements still have anti-poaching provisions despite the fact that franchise systems have been targeted by state attorneys general for this practice.

Designate a Compliance Officer.  At some point early in every franchisor’s business life, it is advisable to task a member of the organization with the responsibility of coordinating not only the annual update and renewal process, but also overall compliance with franchise laws.  Setting up a compliance system lessens the likelihood of an inadvertent violation of the laws or mistakes in the registration process.

These simple steps will not ensure a peaceful springtime renewal process without delays or sales down time, but they will increase your chances!

Susan Grueneberg has been working with franchisors in industries ranging from food and beverage to transportation, fitness, senior care, health care, pet services, real estate, children’s activities, automotive care and construction for the past 30 years. She assists franchisors in setting up franchise systems and expanding them nationally and internationally. To learn more, you can reach Susan at 213-892-7996 or sgrueneberg@cozen.com.

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