Tweet

What is the Franchise Ufocs Role

Written by: Bob Richman

Article Overview: Learn more about the UFOC before buying a franchise. Franchising is a contract system between two parties-the franchisor and the franchisee. As with any contractual agreement, there are legal documents and agreements that must be followed by both parties. The first of these documents is called a UFOC, or Uniform Franchise Offering Circular. Essentially this document is a disclosure of specific types of information that the franchisor must present before any agreements are signed.

What is the Franchise Ufocs Role

Learn more about the UFOC before buying a franchise. Franchising is a contract system between two parties-the franchisor and the franchisee. As with any contractual agreement, there are legal documents and agreements that must be followed by both parties. The first of these documents is called a UFOC, or Uniform Franchise Offering Circular. Essentially this document is a disclosure of specific types of information that the franchisor must present before any agreements are signed.

The FTC set out the first franchise rules requiring minimum disclosure in 1979, originally known as an offering circular. Since that time the format and content have continued to evolve, providing a stronger and more uniform means of disclosing information about the company from whom you may be proposing to purchase a franchise. There are two entities responsible for the evolution of the UFOC: the FTC (Federal Trade Commission), and the NASSA (North American Securities Administrators Association). The most commonly used form for the UFOC comes from NASSA and is accepted by the FTC.

There are 15 states that, in addition to requiring a franchise to have a UFOC before selling franchises, also require that the document be registered with the state. These states are known as registration states.

These states include:

* California
* Hawaii
* Illinois
* Indiana
* Maryland
* Michigan
* Minnesota
* New York
* North Dakota
* Oregon
* Rhode Island
* South Dakota
* Virginia
* Washington
* Wisconsin.

The important thing to realize about the UFOC is that while the document must contain certain required information, such as franchise fees and additional start-up costs, there is no auditing required of this agreement. In other words, the agreement has to be there but is not guaranteed by any third party to be accurate. Additionally, states that are not registered states do not require that a copy of the UFOC be sent to any regulatory agency.

A UFOC is designed to give you the information you need to make an informed decision about whether or not you would like to go into business with the franchise. As such, you can be reasonably sure that the information presented in such an agreement will be accurate. If a franchise blatantly misrepresents the opportunity, there is recourse through the courts. This is not to say that franchises make a practice of misrepresenting what they are offering, but rather a reminder of the age-old adage, "buyer beware". If you know what you are looking at you are much more likely to make a solid decision.

So what good does a UFOC actually do?

A UFOC provides many kinds of information, including information on the company officers and current franchisees as well as financial disclosures. The information provided in this document should give you a good overall picture of what the company is offering and with whom you would be working, but it also gives you resources to check out yourself. There are 23 areas, or items, within a UFOC. One of these items is contact information for current franchises. The importance of a UFOC is that it provides you with all of the information you need to review the franchise itself-but it is by no means end of researching a franchise opportunity.

What the UFOC contains

The UFOC includes information on the franchisor, the key company employees and how much experience in franchise management they bring to the company, as well as bankruptcy and litigation history. You want to know what kind of expertise you are buying into.

In addition, it includes all the information on the investment required for this franchise. This includes initial franchise fees, required equipment fees, start-up estimates, and any required purchases you'll need to make to get started. Suppliers with whom you are required to do business must be disclosed, as well as how much you are expected to contribute to things like the annual advertising budget and how much it should cost to set up your initial inventory.

The UFOC must also contain the legal agreement for trademarks, which products or services may be offered, and any reporting required from the franchisee. The obligations of the both the franchisor and the franchisee will be disclosed, and the rules governing the transfer, termination, and renewal of the franchise agreement are included.

An earnings claim (what you should be able to earn) may or may not be included and is not a required item of the UFOC. If it is included, make sure that the company can verify their claims.

There are other agreements that must be decided between franchisor and franchisee. While some of these agreements may be laid out in the UFOC, others could change depending on the requirements of the individual franchise agreement. Things like protected territory are often decided on an individual basis. In these cases, any other agreements that will be required must be attached to the UFOC, including the individual franchise agreement in its generic form.

Related Articles
  Why You Should Work With a Franchise Consultant
  The best franchise systems all have effective leadership.
  How Can You Get Out of a Franchise?
  Franchise Financial Information
  Finding a Franchise

Article Tags: administrators association, auditing, buying a franchise, california hawaii, contract system, contractual agreement, disclosure, federal trade commission, franchise fees, franchisee, franchises, franchisor, ftc, legal documents, nassa, north american securities, regulatory agency, ufoc, uniform franchise, washington wisconsin



Related Forum Posts
Re: Enticing Franchises - Top 9 List - All Franchise listed above are in millions of dollars. Do you have the list of Franchise in thousands
Re: Info for would be franchisers... - [quote="Sebastien":1d29sdv1]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to. I just want to mention that all these magazines are NOT franchisee oriented. I mean these magazines are for franchise professionals. If you're looking to buy a franchise, you won't find much information in there. To answer your question, getting published in Franchise Times was fairly easy. I don't want to brag too much but I think I am known in the franchise industry. I was the marketing guy at Franchise.com for a few years before joining my new company, the World Franchising Network. So people know me and I have a very good relationship with Nancy Weingartner, the Managing Editor at Franchise Times. I was talking with her at the last Franchise Expo South in Miami and she mentioned she'd like me to be profiled. I was like "ok, sure!". I like this franchise executive profile thing in Franchise Times as it is rarely BS. People are usually really natural in there.[/quote:1d29sdv1] Thanks for the follow up Sebastien! And I can't say that I'm surprised that networking with the right people and managing your relationships with them properly are the keys to being published. I guess the old adage holds true of "it's not who you know, but who knows you" that's important.
how much for a franchise fee? - Dear Colleague There is no easy answer to this question. Things to consider: [list=] The sizeof the Franchise Clent base Expected Turnover Intellectual Property costs (recoup) Number of Franchises Number of employees Original Set up costs Franchise admin costs An example: A franchise that I was involved in setting was to a simple "lawn mowing/home repair" franchise. The Franchise included national/local advertising - preparation of client lists - general admin - central accounting etc The Franchise involved 300-500 clients - and an annual turnover of about $300,000 . The annual franchise fee was $30,000. Hope that this gives you some idea Take care Ian[/list]
Re: Franchise Surveys - Another good tool to researching a franchise is to speak with their existing franchisees. This contact information is included in most Franchise Disclosure Documents. In order to get a Franchise Disclosure Document or FDD as it is often referred to, you will have to complete a basic franchise application. The franchisor will then usually provide you with the FDD at that time. Included in that book of information is a list of the existing franchisees, the contract, the investment information etc... This information is required by Federal Law to be disclosed to your prior to making a purchase. So be sure to do your research and start with the Franchise Documents to get the initial information.
Re: Info for would be franchisers... - [quote="Sebastien":2gam0klq][quote="BuzzAroundBooks":2gam0klq]Like Franchise Times, Franchise Update is a very practical magazine. There is no blah blah, just straight facts that anyone in the franchise community can relate to.[/quote:2gam0klq][/quote:2gam0klq] That is really what I look for in any industry publication. We lead busy lives and when people fill their magazines with fluff, not only does it benefit no one, but it makes us truly appreciate those that don't. Thanks!


Share this article with your friends. Fund someone's dream.

Leave a comment below or share on the left and you'll help support entrepreneurs in Africa through our partnership with Kiva. Over $50,000 raised and counting - Please keep sharing! Learn more.

Tweet

Newsletter

Get advice & tips from famous business
owners, new articles by entrepreneur
experts, my latest website updates, &
special sneak peaks at what's to come!

Name:
Email:

Popular Articles

LEARNING TO HAVE FUN – EVERYDAY!

Convening a focus group for a niche product

Why Small Businesses Don't Survive

Suggestions

Email us your ideas on how to make our
website more valuable! Thank you Sharon
from Toronto Salsa Lessons / Classes for
your suggestions to make the newsletter
look like the website and profile younger
entrepreneurs like Jennifer Lopez.