As dictated by the Federal Trade Commission (FTC), franchisors are required to give prospective franchisees a copy of their Uniform Offering Circular (UFOC) document, which contains financial and material information about the franchisor. The Franchise Agreement is an important part of the UFOC and an integral part in the franchise selection process, as it discloses the good and bad about a company. You should probably seek assistance from an accountant or another professional when reviewing financial information. Though having a professional check out your UFOC / Financial Statements / Franchise Agreement may cost anywhere from a few hundred to a few thousand dollars, but, considering the substantial financial investment you’re going to make, this little consulting investment will definitely pay off.
There are a number of things you can do to verify the information in the UFOC document as well as uncover potential red flags. The government does not review UFOCs to ensure their accuracy; it only requires that franchisors provide it to prospective franchisees – meaning that you absolutely must substantiate the UFOC’s financial statements.
Usually, franchisors don’t make straight-forward earnings claims; rather, they supply information from which you as the prospective franchisee can calculate gross sales. Consider contacting existing franchisees to find out their earnings if you’d like to substantiate earnings claims.
When reviewing the UFOC, consider: does it reveal any unusual risks taken by the franchisor? How’s the franchisor’s litigation record? How are the franchise outlets performing? How well are the company’s intellectual rights protected? If the company’s intellectual rights aren’t properly protected, other businesses could copy your name or logo and/or open up shop in your area, which means that they may take away your business and profit from what should have been your name recognition.
Franchise Financial Information - To learn more about this author, visit Sebastien Page's Website.
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Sebastien Page
(Visit Sebastien's Website)
Sebas
tien Page is Director of Marketing for
Wo
rldFranchising.com, the most
comprehensive information resource for
potential franchise buyers. The company
also publishes franchise best sellers such
as Bond's Franchise Guide, and Top 100
Franchises Guide. Before joining
WorldFranchising.com, Page was Marketing
Manager for Franchise.com where he
successfully led the Marketing Department.
Sebastien Page is very active in the
franchise community and he often writes
about franchising, sales and marketing.
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