The Uniform Franchise Offering Circular, or UFOC, as it is called in franchise circles, is the legal disclosure document that franchise companies registered in the US must furnish….
This document is a couple of hundred pages chock full of excitement, with dazzling displays of facts and figures. Well OK. It is not exactly exciting..or even dazzling. It does, however contain facts. Lots of them.
Out of the twenty three listed subject lines, five of them stand out as the most important areas for you to focus on, when doing your research. Here they are:
1. Litigation. If the franchise concept has 40 franchises in business, currently, and there are 4-5 pieces of litigation, for me, that is a red flag. In my humble opinion, that is a large number. Find out who is suing who. See if you can detect a pattern.
2. Bankruptcy. If any of the franchisor’s officers had previous personal bankruptcy filings, this should be something you look into. Did they have other franchise companies at one time? That went under? Dig.
3. Franchisor’s Obligations. This is a critical section of the UFOC. This is where the metal meets the road. What will this franchisor do for you? What must it do for you? It will also discuss methods they use to do such things as securing locations, and how they get to market.
4. Earnings Claim. about 20% of franchisors disclose in one form or another, sales figures. These figures may be presented in many different ways. I have seen UFOC’s with 1st, 2nd and 3rd year sales totals, and some even with gross profit margins included. This is wonderful information, but you still need to verify those figures with current franchisees.{See next item}
5. List of Outlets. This is the most important part of this truly awe inspiring and exciting document. You get to contact all the current franchisees in the system! Wow! It gets even better.You also get to call the former franchisees, who have left the system within the last 12 months. The franchisees who have left the system have not necessarily gone out of business. They may have sold their franchise! They may even have been terminated by the franchisor. Find out.
The UFOC contains really important information about the franchise company,it’s officers, and its franchisees. Dig in…
{If you, or anyone you know, is interested in exploring franchise ownership, you can get expert advice, right here. Call Joel Libava at 216-831-2620, or call our toll free franchise line at 1-800-460-8299. E-mail works, too- franpro at sbcglobal dot net}
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