2.20 Outlets and Franchisee Information | Item 20

From a franchisee perspective, Item 20 is the single most important item in the FDD. It contains the outlet count, by state, of your corporate-owned and franchised units, and a list of all current and former franchisees, with their contact information. As a startup franchise, this will be blank, but as you grow, you will record how many outlets you had at the beginning of the year and how many outlets you have at the end of the year. If there’s a change, you will specify what those changes are, i.e., how many opened, closed, were terminated, transferred, or ceased operations for another reason.

As a new franchisor with zero outlets, you should keep in mind what this section will look like as you grow. Understand that as a franchisor, you are a semi-public company and Item 20 is your scorecard of how far and wide you have scaled the business. This is also where franchisees get to learn about you in a forum outside of your control. This is a good time to reflect on what the industry calls “validation”. Validation is when prospective franchisees call your current and former franchisees to validate the information they are learning from you and what you have stated in the FDD. You will tell them this is a great business, you will support them, and you have a great team. Franchise prospects will ask your franchisees if they agree. Your success will turn on how they answer those questions.

A major reason franchisors never make it past five units is their first few franchisees struggle, are not happy, and don’t feel the love. If your first franchisees struggle, they will be in next year’s Item 20, they will get calls from prospective franchisees, and you don’t do any more deals.

This section, as proscribed by the regulation, can be a bit confusing and tricky to keep straight. But those are the rules, and we have to abide by them. You can see the categories below that are required. The best practice is to keep excellent records of each franchisee, transaction, and event to make the Item 20 process simple each year. Importantly, an outlet “counts” in Tables 1-4 of Item 20 if it has opened, or if it has stopped operations for any reason. We are not counting franchise agreements, except for Table 5, where we include a count of franchise agreements that are signed but the franchisee has not yet opened the business by the end of the franchisor’s last fiscal year.

Item 20 is also where you will need to disclose any independent franchisee association. If you have received formal notice within the timelines proscribed by law, even if you have an adversarial relationship with the association, you must disclose them in Item 20. If you know of any such organization or have gotten a formal notice, please let your franchise attorney know about it so we can properly disclose it.

Warning, Item 20 is an item that tends to derail the timeline on FDD renewals due to franchisors not staying current or keeping good records. So, keep good notes and records and use the systems we’ve developed for you as a client of the firm.

Sample Item 20, Table No.1

Sample Item 20, Table No. 2

Sample Item 20, Table No. 3

Sample Item 20, Table No. 4

Sample Item 20, Table No. 5

Sample Item 20: Outlets and Franchisee Information (Former Franchisee Contact Information)

Sample Item 20: Outlets and Franchisee Information (Previous Owner Information)

Sample Item 20: Outlets and Franchisee Information (Confidentiality Agreement Disclosure)

Sample Item 20: Outlets and Franchisee Information (Franchisee Association Disclosure)