Each franchisor must produce a document called Uniform Franchise Circular (UFOC), which is submitted to the Federal Trade Commission. This document, with its 23 required items of information, is essential reading for any prospective Franchisee.
Although the contents of the UFOC are prescribed, many franchisors will only present the minimum information needed to get by. So, to get an accurate assessment of the Franchisor, you will need to do some reading between the lines and ask a lot of additional questions.
The analysis of a Franchisor’s UFOC is too big a subject to cover in one article so let me just give you some important tips to keep in mind while you’re reading through the document. More of these follow in additional articles.
Tips •Read the litigation section carefully, looking especially for an excessive number of law-suits by Franchisees. That might indicate that a Franchisor is not living up to its agreement. A real flag: Franchisors that are involved in class action suits and/or expulsions from securities associations.
•Franchisors are often adamant about the Franchisee’s use of their approved suppliers. The prudent franchise investor should compare alternate supply sources with the Franchisor’s approved ones for price and quality.
•Franchisors that offer financial assistance to prospective Franchisees provide a service. Just make sure that the terms and conditions of the system-sponsored financing are fair to the Franchisee.
•When you examine a company’s advertising program and strategy, look for clear-cut goals and effective use of funding. You don’t want to find out that most of the advertising dollars go toward attracting new Franchisees, not customers.
•Most major points of the franchise agreement will not be negotiated by the Franchisor, so if there’s something you cannot live with, be ready to walk away from the deal.
•Be very sure you’ve settled on the right franchise, because, once you have paid the fee, it’s doubtful you will get it back if you change your mind. Most fees are not-refundable.
•Don’t be enticed by Franchisor’s very low franchise fee. Find out what it covers. If training, support and marketing aren’t included in the initial fee, you can end up paying much more on a piecemeal basis than you would with a higher fee that includes all these things.
•Ask yourself this question when considering a royalty fee (especially one that seems high in comparison to other Franchisors): Does the franchise have such powerful name recognition that the high royalty is warranted?
•Find out if Franchisees are paying their royalties. It spells trouble if they aren’t. Either they’re not doing well enough to pay the fee or they’re not satisfied with the Franchisor’s support and services.
For Franchise Buyers: What the UFOC Tells You - To learn more about this author, visit Mary Tomzack's Website.
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Mary Tomzack
(Visit Mary's Website)
MARY E. TOMZACK is the President and
Founder of FranchiseHelp, Inc. She is a
noted franchise expert and the author of
Tips & Traps When Buying a Franchise
(First publication,1994,McGraw-Hill; new
and completely updated, revised edition,
1999,Source Book Publications). Ms.
Tomzack is often interviewed for franchise
articles in publications such as The New
York Times, "Franchise World" and
"Entrepreneur Magazine."
Reach her at (914) 347-6735 or at m
tomzack@franchisehelp.com or co
mpany@franchisehelp.com
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