Joel LibavaThe month of July marked the end of the infamous Uniform Franchise Offering Circular.
{UFOC}
POOF!
Rest In Peace…….
The Uniform Franchise Offering Circular has been slammed by industry and non industry types for years.This required reading document for prospective franchisees although pretty darn boring, is really important. It was just revamped, and renamed. The FDD, or Franchise Disclosure Document. It has some changes, which are pretty positive for the consumer. I discussed the “boring” factor a bit on the MSNBC Business Blog, recently.
When the Federal Trade Commission overhauled its “Franchise Rule” last year, it came up with this new disclosure format. It was one which adopted the UFOC disclosure requirements, but added to them as well.
These are the items that are to be included in every FDD:
1. The Franchisor, its Predecessors and Affiliates
2. Business Experience
3. Litigation
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4. Bankruptcy
5. Initial Franchise Fee
6. Other Fees
7. Initial Investment
8. Restrictions on Sources Of Products And Services
9. Franchisee’s Obligations
10. Financing
11. Franchisor’s Obligations
12. Territory
13. Trademarks
14. Patents, Copyrights and Proprietary Information
15. Obligation To Participate In The Actual Operation Of The Franchise Business
16. Restrictions On What The Franchisee May Sell
17. Renewal, Termination, Transfer And Dispute Resolution
18. Public Figures
19. Earnings Claims
20. List Of Outlets
21. Financial Statements
22. Contracts
23. Receipt
The major differences between the now old UFOC, and the new FDD are:
1. The new law encourages more disclosure about earnings. Information about business costs can be freely disclosed, and financial results can be given in the FDD for a subset of franchisees without having to compare them to the entire chain.
2. The FDD and other informational documents may be sent electronically–a change that will really save franchisors money and maybe even encourage them to send information to prospects sooner.{It is also pretty darn Green!}
3. Franchisors must disclose contact information for all of the franchisee associations in their system, including ones approved by the franchisor as well as independent associations. Before, prospects had to find independent associations on their own.
4. If a franchisor’s corporate parent guarantees the business or provides supplies to franchisees, its contact and financial information has to be disclosed. Previously, corporate parents did not have to be disclosed, at all.
5. More litigation disclosure is now required. Franchisors must list suits they’ve filed against franchisees over the previous year.
The FDD is a welcome change to the UFOC, which has been around for many years, and should provide a little more transparency for potential franchise buyers.
About the Author
Joel Libava is The Franchise King® — an independent franchise advisor with 25+ years in the industry, two published books on franchising, and his writing has been featured in The New York Times, Forbes, CNBC, Entrepreneur® Magazine and others. In addition, he wrote exclusively for the U.S. Small Business Administration blog for eight years. He doesn't sell franchises. Instead, Joel helps you figure out if franchise ownership is actually right for you — and if it is, teaches you his powerful, proven-to-work franchise research techniques, so you can make a smart, informed decision on a franchise to own and be your own boss.
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