What are the Key Items in the Disclosure Document

What Should Be Included in the UFOC

Look over the information in the Uniform Franchise Offering Circular for several key items.

Background

Make sure the document describes the business background of their officers, directors and other key personnel in the franchise company. Look over the summaries as to their experiences in business.

Litigation Background

The UFOC should document the litigation background of the franchisor and the directors and officers as listed above. It should detail if there have been actions taken by state or federal enforcement agencies or if there has been private lawsuits relevant to the franchise system taken within the past 10 years. There should also be a list of any bankruptcies of either the franchisor or any key people.

Summarization of Franchise fees

There should be a summary of the initial franchise fees, ongoing royalty fees and other charges franchisees must pay. It should be noted if the fees have been negotiated over the past year.

Franchisors Estimate of Total Investment

The Franchisor should have an estimate of the total investments by the franchisee and this should be in a chart form for easy reading and understanding. This information is needed when preparing your own business plan or will be seeking any financing. Make sure to take this information with you to your accountant.

Restriction Disclosure

Any restrictions placed on the franchisee's purchase of supplies or product inventory for sale in the business should be noted. This information should include any rebates generated by franchisee purchases and what portion of the franchisor's revenue will come from purchases made from the franchise company. If it looks like most of the franchisor's revenue will come from the franchisee purchases, you will need to find out from other franchisees if products are fairly priced and are delivered on time as supply arrangements are crucial in running a successful franchise business.

Financing

Many franchisors will provide financing to their franchisees or make special pricing arrangements with banks or other lending institutions. If there is such an arrangement, this should be noted

Franchisors Obligation to Franchisee

This is usually the longest section of the document highlighting the franchisor's obligations to the franchisee under the franchise agreement. It should describe the required computer equipment purchases and the initial training program as well as ongoing support.

Territorial Rights

This item should spell out exactly what rights you have, both on the inside of the building and the outside in regards to landscaping and signage.

Trademarks

This should reveal details about the trademark licensed to franchisees. You should know if it is federally registered or is registration pending. If it is pending, then the franchisee or franchisor could have problems down the road if it isn't registered.

Earning Claims

This is another key section which shows what kind of sales or profits other franchise owners are making or have made. The franchisor can choose to supply this information, but most don't. If the franchisor does provide the earnings, it must also provide documents and other data to back up that claim. You can always ask other franchisee as to earnings if the franchisor does not provide it.