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The Franchise UFOC is Required Reading

Written by: David R Waldman

Article Overview: Finding the best business partner involves a due diligence process. The UFOC is the Uniform Franchise Offering Circular required by law to be given to all franchise prospects. This article introduces you to it.

The Franchise UFOC is Required Reading

If I asked you to give me the three most common words that start with the letter ‘R’ you might say: Results, Random and Reactive. But when it comes to partnering in business, the letter ‘R’ stands for: Risk, Reward and Responsibility. If you are going to go into business with a partner, you want someone who will minimize the risk, maximize the reward and share the responsibility to make the enterprise successful. Realistically, most people choose a friend, a spouse or a relative — a partner they believe is predisposed to make an equal and positive contribution to the business. However, such business partnerships have ended friendships — even marriages — and close relationships were lost as the businesses failed.

While it would be unusual indeed for someone to partner with a complete stranger, what qualities would you look for in such a new relationship? You would want a partner who is hard working, has a successful track record along with good sphere of influence. In addition you seek to measure the relationships they have had with previous partners and if they operate with integrity. You would also want someone whose talents and abilities will complement your own — whose strengths balance your weaknesses and vice versa. While finding such an individual partner might be a challenge, finding such a company is not — at least when it comes to franchises.

That’s because franchises fully disclose all the information you need to know in order to determine if they are the right partners for you. In fact, the franchise industry is highly regulated in this regard and is mandated by the federal government to provide full disclosure. This is why you may have heard that franchises are safer type of investments. Franchises distribute their UFOC (Uniform Franchise Offering Circular), a document every franchise is required to make available to all serious candidates. The UFOC contains all the critical details you need to fully evaluate the business opportunity and the company that stands behind it.

Actually, UFOC could stand for “Unlimited Facts on Company”, because it’s far more than a circular. Every UFOC contains 23 standard items; we’ve seldom seen one that’s less than 100 pages. And while a UFOC is not exactly exciting reading, it should be viewed as required reading by anyone seriously considering a franchise. Here are the federally mandated items every UFOC must contain:

• Items 1 through 4: The franchiser’s background, the experience of key executives and the company’s litigation and bankruptcy history.

• Items 5 and 6: All the fees charged by the franchiser.

• Item 7: An estimate of the total investment needed to establish the business model.

• Item 8: Restrictions on the purchase of products to be used and sold in the unit.

• Item 9: The franchisee’s obligations.

• Item 10: Financing that the franchisor makes available.

• Item 11: A summary of the services, such as training and site selection that the franchiser provides in relation to the franchise program.

• Item 12: Territory- how is it determined.

• Items 13 and 14: The status of the trademarks, copyrights and patents associated with their program.

• Item 15: Obligations of the franchisee to participate in the actual operation of the franchised business.

• Item 16: Restrictions on what the franchisee can sell- multiple profit centers.

• Item 17: Renewal, termination, transfer and dispute resolution provisions.

• Item 18: Public figures used to promote the franchise.

• Item 19: A description of how well the franchises perform financially.

• Item 20: System statistics and lists of franchisees along with former franchisees.

• Item 21: Financial Statements

• Item 22: Contracts

• Item 23: Receipt

Clearly, that’s a lot of information to digest, but it’s critical that you take the time to do so. In fact, the Federal Trade Commission ( www.ftc.gov ) ensures that you have that time to thoroughly review the UFOC. The FTC enforces a minimum waiting period of 10 business days before any money is paid and any agreement to purchase is signed.

As a legal document, the UFOC can be daunting and while some items are shorter and easier to understand by the average person, others may warrant a review by an accountant or attorney. And while no single item should be considered unimportant, some will be of particular interest — like Items 19 and 20.

Item 19 addresses financial performance and may answer the question every franchisee candidate wants to ask: “How much money will I make?” It is here that the franchisor may state earnings claims based on the average financial performance of existing franchisees. There are two important things to keep in mind. First, most franchisors do not publish earnings claims in their UFOC (although for those that do, it should be viewed as a positive reflection of the company’s confidence and consistency).

Secondly, franchisors are strictly prohibited from making any earnings claims (verbally or in writing) that are not included in their UFOC. Important note: Telling you “Our top 3 franchisees grossed more than $400,000 last year” is not an earnings claim. Stating, “You can expect to gross $400,000 per year on average” is an earnings claim. And if it is not printed in the UFOC, the franchisor cannot and should not communicate it in any other way.

If a UFOC does not explicitly state earnings claims, then Item 20 provides the details that enable you to ascertain financial performance. It is here that the franchisor lists current and former franchisees. And unlike any personal or professional references one might include a resume, the franchisor is required to list all franchisees, not just the best ones. If you’re a serious candidate, you’ll want to contact as many of these people as possible to inquire about their individual financial success.


A few additional thoughts I would like you to remember. First, a franchise is not required to provide their UFOC to just anyone who requests it. Most will want to have at least an initial conversation with you and possibly have you submit a formal application. That’s because they qualify you just as you are qualifying them. If you see them as a prospective business partner, they want to see you as a serious candidate as well. Your success as a franchisee is critical to the success of the entire system; therefore they have a vested interest to thoroughly screen all candidates.

Never acquire a UFOC from any source other than the franchise itself. A franchise will never charge you for the document, but there are third-party companies that claim to provide any UFOC for a fee. However, such companies may not have the most current version since franchisors regularly update their UFOC — some as often as every 12 months.

There is no benefit to researching a franchise in “stealth mode”, so never hesitate to talk with the franchise directly. It is absolutely the best way to get all your questions answered and it is the only way to secure a free copy of their current UFOC. Also, do not assume the company views the dialogue as a sign that you are ready to move forward. They understand that they are likely one of many opportunities you are investigating (just as you are one of many candidates they are considering).

In conclusion, while the UFOC is perhaps the single most comprehensive resource in finding the best franchise business partner, it’s not the only one. There are many other factors, not the least of which is taking the opportunity to meet the franchise management face to face. Almost all franchises regularly schedule candidate visits to their corporate headquarters, commonly called “Discovery Days”, because it’s these events that allow you to talk with top level management, get a real insight to their training program, ongoing support, and personally meet those with those whom you may be working with years to come. Meanwhile, think of the UFOC as the franchise’s resume— a very large one indeed — and use it to determine if it’s time for you to take them more seriously.

David R. Waldman is the founder of PIR & Associates Inc. providing no-cost assistance to entrepreneurs nationwide, helping them identify franchise business opportunities that match their interests, backgrounds and goals. PIR & Associates Inc., features over 400 different types of franchise concepts.

Contact us at 1-877-615-5177 or visit our web site at: www.PIRandAssociates.com

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UFOC Clearly States - Every UFOC clearly states that no government agency has checked the information in the UFOC. It is up to you to check it. You cannot simply rely upon what is in the UFOC without checking it out. (One might think that this is a make work program for franchisee lawyers and consultants, except that few franchisees every check out the UFOC.) There are a lot of ways to check the information out. For example, Netfran Development's UFOC has no earnings claim in item 19. But since the UFOC also discloses that NetFran is a public company, and so it is useful to review the company's 10k's - a public document- to see what is says about its franchisees. Remember that it is up to you to check out the UFOC and report any inadequacies to the relevant state/fed authorities.
Internet consulting franchise - Do you think if you sent in an application to Netspace or to whatever franchise concepts you have an interest in developing and you possess the requisite net worth and cash to qualify that that might be a good way to get the UFOCs from these companies? The UFOC is the fountainhead for your due diligence otherwise asking inane questions on this forum or any other one is a waste of time. Now you could alternatively purchase the UFOC from a third party. If you have a UFOC then you have a list of current and former franchisees and I must point out that they likely have more useful information than the anonymous posters and those posters who just have an opinion.
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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.


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