Franchising is Regulated to Keep You Honest

Any change you make, every move you make, they will be watching you. Sound like a song? Well it is, but we are referring to franchising, specifically if you choose to franchise your business and what it will look like in the future because franchising is regulated. That’s right, it doesn’t stop just because you put a franchise program together and get an initial approval. Throughout your future franchising endeavors franchising is regulated to keep you honest and make sure that your flying straight. There are many aspects of your franchising activity that are tracked and could cause area of concerns for examiners in the future. We are referring to your Franchise Disclosure Document otherwise known as the “FDD” (read about the elements of a Franchise Disclosure Document).

Here is Uncle Dave’s (our President) version of the song when it comes to your future franchising activity and making changes to your franchise program and FDD once created. It goes something like this… “any change you make…every move you make…with regards to your franchise program and changes to your FDD…needs to be submitted and approved”. So what will this really mean for you? Let’s break it down. In the future, when you are making changes to your franchise program and FDD you must be in compliance with franchise regulations. Why as a future franchisor would you want to change your FDD you ask? Easy… in the future when you are franchising you might want to implement a new fee, make edits to who is part of your franchise team or change some general terms of your agreement with franchisees. When franchising you will be required to renew/update your FDD annually so that is a perfect time to implement any changes into your franchise program and documents. However, there may be a situation in the future where you want to make changes to your franchise program and documents mid-year before your annual update (check out our article on what are annual updates and renewals).

Regardless of the genesis of the changes to your franchise program and edits to your FDD in the future, because franchising is regulated and such changes will need to be approved prior to implementation, it will be important to consider the potential consequences that could come with doing such things mid-year. You will learn from working with us that if your business is located in a Registration State, then your FDD will be a registered document in that state (more on Franchise Registration States). Therefore any change or edit that you make to your franchise program and FDD in the future must be done by the franchise attorney (providing you with a franchise attorney is just part of our process…see a quick list of everything we do to franchise your business) and must be submitted to the Registration State for approval. There is a reason why franchising is regulated. Subsequently if you become registered in multiple Registration States then guess what, your changes will need to be submitted to each of those Registration States for approval prior to implementation. Even if you are not required or decide not to register your franchise in any Registration State you may think you are in the clear and can do whatever you want to your franchise program and documents without any repercussions; but that is not quite right as you will see below.  

Here is the kicker. After you have received approval for changes to your franchise program and FDD (assuming this is mid-year rather than annual as described above) then it will be required that you re-disclose ANYONE who had a copy of your FDD with the newest one. What exactly does “re-disclosing” mean? In franchising, typically any applicant you are talking with about franchising must be provided with a copy of your most recent FDD and that person must have your FDD for a certain period of time before that person can become a franchisee. So this means any time you make changes to your franchise program and FDD the disclosure period will need to start all over again. So even if your future FDD is not registered in a Registration State, it will be easier for you to implement changes to your franchise program and FDD because you will not have to wait for approval from the state, however you will still be required to re-disclose anyone who had your FDD. If you do not re-disclose franchise applicants after such changes have been made and are effective, then you will be walking a dangerous line opening yourself up to various claims in the future (read more about sales misrepresentation in franchising). When working with us to franchise your business, we train you on why franchising is regulated and how you can avoid making such costly mistakes in the future.

It’s not scary. In fact franchising is regulated to not only protect those looking to buy into a franchise but also you as a franchisor. Not to worry, we not only build franchise programs completely from scratch; a big part of our program is teaching you about all the franchise regulations while mentoring and training you how to be a franchisor. To learn more about franchising your business give us a call at 1-877-615-5177 or simply send us your contact information. We will be happy to talk with you, answer your questions about how franchising is regulated and explore if franchising makes sense for you.