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for “franchise compliance”
Maryland Franchise Law and FDD Registration
Maryland is a franchise registration state and under Maryland law a franchise must be registered with the Maryland Attorney Generals Office.
Franchising Your Business: Begin with the End in Mind
Franchise Strategy #1: Develop a clear vision of franchising your business and franchise success including KPI’s, milestones, and 5 year plan
South Carolina Franchise Law and FDD Registration
South Carolina is not a franchise registration state, but it has enacted business opportunity laws that require franchise filing before offering or selling franchises South Carolina. Learn more.
Virginia Franchise Law and FDD Registration
Virginia is a franchise registration state. Before offering or selling a franchise in Virginia you must comply with Virginia franchise law.
Melissa Castoro
Melissa is the Director of Client Development at The Internicola Law Firm, P.C.
Ensuring Receipt of Your Franchise Disclosure Documents
FDD Disclosure Receipts One of the most basic regulatory requirements imposed on franchisors related to the delivery of your Franchise Disclosure Document (FDD) to prospective franchisees. That is‚ under the Federal Franchise Rule franchisors must deliver and provide a prospective franchisee with the franchisor's FDD no later than 14 calendar days prior to both (a) receiving any funds or payments from the prospective franchisee and (b) entering into any agreement with the prospective franchisee. After you enter into a franchise agreement it is critical that‚ internally‚ you maintain a compliance file demonstrating that you properly delivered your FDD and you did so in accordance with federal and state law. The most common method for documenting this compliance matter relates to the "FDD Disclosure Receipt" that should be contained or identified in Item 23 of your FDD. Upon delivering your FDD to a prospective franchisee you must have the prospective franchisee sign the disclosure receipt where‚ among other things they acknowledge the date that they received the FDD. Other Factors to Consider It is also important that you deliver the FDD to the right people such as: Each individual franchisee A principal officer of a corporate franchisee The managing general partner of a partnership The manager of a limited liability company Upon delivery of the FDD‚ you should document the following information: The date the FDD was received The date any addendum to the FDD was received The date that completed copies of all agreements to be executed were received by the prospect The date that the first agreement was received by the prospect The earliest date a check‚ cash‚ or other consideration was delivered by the prospect to a representative of the franchisor‚ and the name of that individual. Learn More Order a complimentary copy of the Franchise Compliance Guide which contains the federal franchise rules and obligations for franchisors. Learn more about FDD Disclosures by contacting us at (800) 976-4904 or by clicking the button below. Learn more
How to Franchise a Business: Franchising Done Right
Franchising Done Right Decide if you should franchise Franchise the right way and choose a team Approach success strategically Get involved in the industry Franchising is a proven business model that can help successful businesses scale – if it’s done right. From ongoing revenue streams to vast growth potential, franchising can be an attractive option for successful entrepreneurs seeking ways to take their business to new heights. As a proven model for scaling a brand, franchising offers an abundance of benefits for business owners looking to grow their company beyond the local market. But as an aspiring franchisor, how can you be sure you’re franchising your business the right way? And how can you avoid common mistakes that might lead to bigger problems down the road? In this article, we’ll explore best practices for franchising your business – and explain why doing it the right way is critical for long-term success. Why Franchising? For business owners seeking new opportunities to grow and expand into new markets, franchising is often the ideal next step. “Franchising allows you to grow your brand by utilizing other people's capital, utilizing their human capital and operating the business typically in markets they have a geographic presence in. … You can grow much faster when you grow through franchising if, obviously, you bring the right franchisees on and you set your company up the right way,” says Steve Beagelman, a 30-year franchise industry veteran and president and CEO of SMB Franchise Advisors . In addition to its scaling potential, franchising can also be a source of ongoing revenue for franchisors through fees and royalties paid by franchisees over time – something that often makes franchising even more appealing for successful entrepreneurs hoping to take their business to the next level. Is your business franchisable? Despite its advantages, franchising isn’t for everyone. Because of that, it’s a good idea to pause and decide whether franchising is right for your business before advancing to the initial stages of franchise development. “Make sure your business is franchisable. Not every concept is duplicatable or replicable. And if it's not – if you're the only person who can make the pizza in your restaurant every single day, and nobody else can make the pizza as good as you, I get it. But then, how could you franchise your business?” Beagelman says. In addition to making sure your business is replicable and scalable, take time to determine whether your brand has a history of success, is well-financed, and your trademarks are protectable. Choose the right time Beyond franchisability, good timing is key when it comes to franchising. Because franchising too early or too late can have disastrous results for new franchisors, take stock of where your business is – and where it’s headed – before you franchise. “You could certainly franchise too early. If you just opened your business and you haven't proven the concept, and it's a new industry, it probably isn't the right time to franchise your business. At the same time, you could franchise too late. Did you miss the window that you had to grow your business? That does happen sometimes,” Beagelman says. If you’re considering franchising your business but aren’t sure if now is the time to do it, check out our article on determining the right time to franchise your business . Be ready to commit Franchising requires a serious commitment from franchisors in the form of both time and money. New franchisors should plan to spend between $18,500 to $84,500 to launch their new franchise system, including legal and development fees and the first year of franchise sales. “I tell people all the time, there's nothing wrong with having a great little regional brand and having three or four locations that you own in a market. That's pretty cool. But if you want to see your brand become bigger, then franchising is a great growth strategy – but you have to be willing to commit not only the financial component but the time component,” Beagelman says. While franchising a business usually only takes between 90 to 120 days , new franchisors should expect to spend at least five years growing their brand from a startup into a successful, seasoned franchise system. Franchise the Right Way Once you’ve determined that franchising is right for you, it’s critical to lay a foundation that will be strong enough to support your franchise system for years to come. Although it won’t be an easy process, franchising can be rewarding if it’s done properly from start to finish. “It is difficult – it is a new industry – but if it's done the right way, you could slowly scale into it without blowing budgets, without making big mistakes,” says Charles Internicola, a franchise attorney with over 25 years of experience and founder of The Internicola Law Firm . Choose the right legal team The franchise industry is complex and highly regulated at the federal level and, in many cases, the local state level. Because of that, having a strong legal framework is necessary for the sustainability of any franchise system. As a new franchisor, one of the most important actions you’ll take during the franchising process is selecting your legal team. Although consultancies advertising themselves as “one-stop shops” for franchising can be appealing to new franchisors that want to save time or effort during the development process, working with a specialized legal team can be beneficial when it comes to ensuring the legal foundation of your new franchise is rock-solid – even several years after you launch. “We’ve had to take on a client where they thought everything was good, and it turned out three years later there were legal issues. Because they worked through the franchise consultant, and not the lawyer, they don't have a lawyer to turn to and it's a whole bunch of issues for them,” Internicola says. Comply with laws and regulations As a new franchisor, it’s important to address the legal needs of your franchise as early as possible and tackle difficult tasks directly. “We see it a lot where people are told, ‘Hey, I could license instead of franchising.’ But the laws are designed so you can’t avoid franchise regulation, so chances are, licensing is not an alternative to franchising ,” Internicola says, explaining that sometimes business owners try to license their brand to avoid navigating the complexities of franchise regulation – a misguided decision that could have expensive consequences down the road. Instead, it’s important to make sure your franchise system is set up properly from the start. Because franchise laws and regulations are complex, ranging from the Federal Trade Commission ’s Franchise Rule to local state laws that vary by location , working with an experienced franchise attorney to ensure compliance in every jurisdiction your franchise operates in should be a priority during the franchising process. Develop strong foundational documents Making sure the necessary documents to start a franchise are properly prepared, legally compliant, and, in some cases, filed with the appropriate agencies, is critical to the success and longevity of your franchise system. As a new franchisor, it’s always a wise decision to seek the assistance of qualified industry professionals when preparing any important documents for your franchise. Franchise Disclosure Document The Franchise Disclosure Document is a legal document containing 23 disclosures mandated by the federal Franchise Rule. The items contained within the document include information about the franchisor, the franchise opportunity being sold, fees, financial disclosures and more. “The FDD is the legal underpinnings (of your franchise). That's the document that you're required to disclose to offer or sell a franchise,” Internicola says, highlighting the document’s importance for selling franchises in the future. In addition to being mandated under federal law, the Franchise Registration States also require franchisors to register their FDD locally before offering or selling franchises in those states. Because the FDD is a significant legal document regulated by complicated laws at varying levels, franchisors should work directly with a franchise attorney to ensure its proper preparation and legal compliance. Franchise Agreement Another critical legal document, the franchise agreement establishes a legal relationship between a franchisor (you) and a franchisee (the party purchasing a franchise opportunity from you). The franchise agreement should contain information about the legal rights and terms of your relationship with the franchisee, including each party’s obligations to the other, details about initial and ongoing training and support, operating procedures, fees, royalties, territorial rights and more – key factors that can all be important for making or breaking your brand’s future growth. As a franchisor, the franchise agreement will serve as the most important legal document for defining and governing the legal relationship you have with your franchisees. While it’s okay to work with a franchise consulting firm to determine fee structures and other details, the franchise agreement should always be prepared by an experienced franchise attorney. Operations Manual As a seasoned business owner, you’ve probably already established operating systems and procedures for your business. As a franchisor, however, it’s important to make sure those procedures and policies are written down and made accessible to franchisees across the entire system via your franchise operations manual . “You need a system and a process written down in a manual format that a franchisee is going to follow. It's kind of like their blueprint for operating the business,” Beagelman says. As a valuable resource for franchisees, the operations manual should communicate your brand’s values and daily operating procedures in a way that ensures consistency across the entire franchise system. Its contents should include contact information for the corporate team, information about incorporating as a business, hiring and firing employees, equipment, supply chain details, training, marketing, business development resources and more. As your franchise system evolves, keep your franchise operations manual updated to reflect any changes. Approach success strategically When you’re just starting out in the franchising world, it can be tempting to spend a lot of money on marketing to draw franchisees’ attention to your brand. For new franchisors, that decision can sometimes be a mistake. “You really need to season and grow organically, initially, and get your footing. Otherwise, you could spend all the money in the world and it's not going to move the needle. It's about being strategic and smart,” Internicola says. To achieve that organic growth during your first couple of years in business, Internicola advises new franchisors to develop marketing and sales plans early on and build on them over time. Create a marketing plan As a new franchisor, it isn’t necessary to develop a full marketing plan at the very beginning. Still, it’s important to establish a strategy for marketing your franchise at a foundational level. No matter how solid your marketing is, though, growth won’t happen overnight. Because of that, new franchisors should expect success to take time – in many cases, years. “If you are franchising your business, you need to know that your brand needs to season. Your franchise needs to season over the first 12 months, and then 24 months – and there are steps involved,” Internicola says. Develop a sales process Once you’ve established a marketing plan to generate interest in your franchise system, the next step is selling franchises after your FDD is issued. To increase the chances of making sales, establishing a consistent sales process is key. Although each brand has its own system, franchise sales processes typically include the creation of a franchise sales website and compelling brand story , a preliminary discovery call where you or a member of your corporate sales team speaks with prospective franchisees about the opportunity being offered, followed by a more detailed educational and discovery process for serious franchisee candidates, and eventually the disclosure of the FDD before selling a franchise. Even with a strong sales process in place, though, new franchisors should understand that selling franchises is a marathon – not a sprint. “One of the most difficult things in the industry is selling franchises. It doesn't happen overnight. You’ve got to put in the time and effort. You can't just go spend a truckload of money and it happens. It's going to be a process over year one, organically, then year two and year three,” Internicola says. Get involved in the industry For startup franchisors, the work isn’t finished once the development process is complete and the FDD has been issued. To ensure success over the long-term, networking and ongoing education is critical. One of the best ways to learn the ins and outs of franchising is to network with brokers and other franchising professionals while attending educational industry events. “That is what makes a successful franchise: empowering yourself and learning franchising, going to conferences. There's so many things you're going to absorb, even subconsciously, in the interactions and meetings with people. … The reason why I think it's so critical (to be involved) is because you need that perspective to know who you should rely on and who you shouldn't, and who you should trust with your money and what investments to make,” Internicola says. Although going from a startup to a thriving franchise system requires a good deal of time and effort, the rewards can be worth it for franchisors that are willing to roll up their sleeves and involve themselves in the process. “You have that financial reward, but what I also find is that as our clients grow, there's that personal satisfaction – not just of achieving for themselves, but seeing and being happy with the value they're adding to their franchisees and those relationships,” Internicola says. If you’re ready to franchise your business the right way, we can help. Contact us at (800) 976-4904 to learn more about our services for new and existing franchisors. Learn more
Franchise Your Business
Nationwide legal and franchise development services to franchise your business including FDD development, operations manual preparation, and franchise sales
FDD Item 19 Financial Performance Representations
An Item 19 Financial Performance Representation is a statement made by a franchisor about the financial performance of a franchise opportunity. Learn more.
3 Reasons Why Your Franchise Lawyer May be Costing You Deals
For some franchise brands, the legal process can be frustrating. You spend tons of money, time, planning, and effort to attract, recruit, and onboard new franchisees. And along the way, come legal obstacles. These obstacles come in different forms and varieties. What they all share in common, is that they cost deals, add unnecessary frustration, and, so much more often than not, are avoidable. They're also a sign that you're not getting the legal support that you need and deserve. Why does this happen? Well, you may not be working with the right legal partner for your brand, and below, we list 3 reasons why your legal team may be costing you deals: 1. Your FDD Does Not Meet Best Practices The Franchise Disclosure Document is, unavoidably, a part of the franchise sales process and needs to be competitively positioned. No matter how great your franchisee attraction, education, discovery, and sales processes are, your FDD plays a role that is front and center to your entire recruitment process. This is even more the case when dealing with franchise brokers and broker organizations that scrutinize FDDs who are looking for the right relationship and fit for themselves and their franchisee candidates. If your FDD doesn't reflect best practices, it's costing you deals. Not only the deals that seem to fall off track last minute and don’t close but, also, lost deals that either never gain traction or never get to your door. Consider some of the following best practices strategies that you cannot afford to miss out on: An Industry Best Item 19 Just about every brand has an Item 19. But, most of them are missing the detail, data, and insights that are needed to supercharge franchise sales and attract brokers. Transparency is critical. And, even if your data is average or on par to your competitors, there is so much opportunity to differentiate your brand within your Item 19. You know the questions that candidates are asking, so why not do a deep dive with your legal team to develop a great Item 19 framework? It should include detailed definitions, a clear narrative about company-owned and franchised outlets, data that goes beyond gross sales and, at a minimum, includes cost factors and gross profits or unit level metrics demonstrating average sales, pricing, year over year growth, and other data unique to your business. Modeling out your Item 19 should involve a planning process that starts early--months before registration and renewal season--and not a last minute conversation in December or January. Multi-Unit Strategies that Attract and Support Future Growth Your FDD needs to get your multi-unit development offering right. We all know that brokers, for good reason, love to sell multi-unit / multi-development franchise opportunities. So, how well is your FDD structured? If you are a brick and mortar retail based business or restaurant, do you have a competitively positioned and easy to understand multi-unit development opportunity? If you are a service based business, does your FDD clearly offer multi-territory opportunities that make sense? Getting your multi-unit development opportunity right is not just about sales. Your legal team should help you make sure that you have the right legal safeguards in place to avoid underperforming franchisees and under-serviced territories. This requires a smart assessment of territory requirements, performance requirements, and adaptable minimum royalty structures. Franchising Fairness With your legal team, there should be an always-on process focused on streamlining your FDD. Where possible, your FDD should incorporate fairness provisions that balance out franchisee concerns and frustrations during the initial review process. Whether it's granting multiple renewal terms, reducing renewal fees, facilitating franchisee estate planning goals, and other fair and reasonable franchisee requests, there's an opportunity to improve your FDD and differentiate your brand. At The Internicola Law Firm, we start our planning process for the next year around June/July. 2. Your Registrations are Delayed and Your Sales Go Dark Every franchise brand has experienced this at one time or another. And, many times, it may have nothing to do with your legal team. But, if FDD development and state registration delays are caused by your legal team and a poor update process, then you’re unnecessarily losing deals and hurting yourself. For calendar year franchisors, your FDD updates, renewals, and planning should start in the summer and not later than September. Early on, your attorneys should be modeling out and communicating opportunities to improve your Item 19 and give you the time needed to collect and organize data. Also, the planning process should involve accountant conversations to prepare audited financial statements, and stage FDD updates to be painless and ready to launch in the new year. Early planning, process, and communication is key. Waiting until November, December, or January is just a recipe for frustration, delays, and lost opportunity. Then, once your FDD is submitted for registration and renewal, your legal team needs to place an absolute priority on immediately responding to comment letters and providing you with immediate updates and the ability to track the status of your registrations. We provide our clients with live access to track the status of their filings and registrations. 3. Attorney Communication, Access, and Turnaround Takes too Long Many times, we hear from franchisors about how much they like their current attorney and franchise law firm, but that the communication and turn-around is killing deals . We also hear about the frustration of having to go over information multiple times with different legal team members and personnel about agreements, addendum, or FDD updates to get out the door. In addition to endless attorney phone-tag, we also hear about the frustration of not having a legal team accessible when you need them. Many times, these problems are caused either because your franchise lawyer and his or her firm is not a franchise only law firm or because they are not built around serving the needs of emerging franchise brands like yours. Your franchise growth priorities need to be their priorities. You need a legal team that’s always accessible, proactively plans FDD updates, registrations, and renewals, and that provides guaranteed turnaround of your agreements, addendums, and franchisee compliance needs. How We Can Help Learn more about our Franchise Counsel Program that’s designed to eliminate these problems. You’ll get 24 hour turnaround time for franchise agreements, addendums, and negotiations, no phone tag, priority responses to state comment letters, plus so much more. Give us a call and we will give you a free evaluation of your current FDD with tips on how we can help improve your FDD that may be killing deals. Learn more about our Franchise Counsel Program and how we can help grow your franchise by calling (800) 976-4904. Learn more
FDD Item 2: Business Experience
Within Item 2 if the Franchise Disclosure Document (FDD), franchisors must disclose the last five years of specific individuals’ business experience.
FDD Item 1: The Franchisor and Any Parents, Predecessors and Affiliates
Within Item 1 of the Franchise Disclosure Document, franchisors must disclose their corporate information, including information about their affiliates and parent companies.
Julia Hedrick
Julia Hedrick is a franchise lawyer at The Internicola Law Firm with a focus on providing legal services to franchisor clients.
Rachel Hillman
Rachel Hillman is a franchise lawyer who counsels and advises startup and emerging franchise brands on franchising, FDD registration and compliance.
FDD Item 3: Litigation
Item 3 of the FDD discloses lawsuits involving the franchisor, the franchisor’s affiliates, predecessors, and other individuals identified in Item 2.
FDD Item 4: Bankruptcy
Item 4 of the FDD must disclose whether or not the franchisor, affiliates, predecessors, and/or individual management team members identified in Item 2 filed for bankruptcy.