Home > Article > John McGavin

Blueprint for success - Part 8

Written by : John McGavin
2008-03-15

Tools for structurally sound decesions

Franchise Regulations and the UFOC

Franchise regulations are in place for the benefit of a person considering buying a franchise. FranNet believes our clients must understand these regulations.

  • Federal law, and state law in 14 states, require that a franchise prospect receive a current copy of the 75 - 150 page document known as the Uniform Franchise Offering Circular (UFOC) at the first meeting with a representative of the franchise company. Furthermore, a current copy of the UFOC must be in the possession of the prospect for 14 calendar days before the prospect may sign any commitment or make any deposits. Finally, the franchise contract, with all blanks filled in, must be in the possession of the prospect for five business days before he/she may sign it.
  • Below you will find the definition of a franchise, courtesy of the Federal Trade Commission, and the table of contents of the UFOC. I have consolidated the twenty-three points into thirteen points, but all are included.

  • A FRANCHISE IS..."AN AGREEMENT FOR CONSIDERATION BY WHICH A PERSON PERMITS THE DISTRIBUTION OF GOODS OR SERVICES UNDER HIS TRADEMARK, SERVICE MARK, OR TRADE NAME, DURING THE TERM OF WHICH THE GRANTOR RETAINS CONTROL OVER OTHERS OR RENDERS SIGNIFICANT ASSISTANCE TO OTHERS."

    THE UFOC

  • Franchisor, predecessors, affiliates, and the officers and their business experience

  • Litigation and bankruptcy

  • The estimated initial investment and all fees, including the initial franchise fee, ongoing royalties, advertising fees, site fees, transfer fees, etc.

  • Restrictions on the sale of products and services, and also on their sources

  • Franchisor's obligations and the franchisee's obligations

  • Available financing and territory rights

  • Obligation to participate in the operation of the business

  • Renewal, termination, transfer, and dispute resolution

  • Earnings and/or sales claims

  • List of outlets and franchisees, including all who left in the last year, and three years of open/closed units

  • Audited financial statements of the franchisor

  • Franchise agreement, leases, and other documents

  • Receipt of the Circular, to be signed by the prospect

  • Beware of the AMBUSH!


    A Dream Denied

    Many people who dream of independence find a franchise that captures their interest. But after a short time, a few days or a week at most, that interest and even excitement is gone-even before they have done any serious research on the opportunity. What happened? They were ambushed!

  • THE SPOUSAL AMBUSH

    This is a familiar event. The business seeker claims, "I've talked it over with my spouse, and he/she says it's my call. Whatever I want to do is just fine!"Fine until the hopeful owner comes home and starts talking about the franchise. Suddenly, the objections and concerns begin to flow. Soon, the task of business ownership becomes complicated by marital disagreement, and what was so promising now appears impossible.

  • THE SOLUTION

    1. Owning a business is a family decision. Even before the search begins, the couple needs honest discussions about the benefits and challenges of business ownership.

    2. When there is agreement to go forward, both parties should attend any future discussions together so that each has the same information. Would you want your spouse to buy a house without knowing your opinion? Investing in a business is an even more important decision and calls for full agreement from both partners. An added benefit is that one may ask a question the partner did not consider.

  • THE FRIEND/NEIGHBOR AMBUSH

    It is flattering to be asked for your opinion.The minute you mention your interest in a business, your friends and neighbors will cheerfully provide their (uninformed) opinions about your choice.

  • THE SOLUTION

    Why would their choices match yours? They have different backgrounds and interests. Give each opinion the worth it deserves based on the knowledge and business experience of the opinion giver.

  • THE SELF AMBUSH

    Often people destroy their own dreams of business ownership by confusing casual inquiry with real research. It is a classic case of "shooting yourself in the foot."For example, you can be interested in a certain type of business and check out the Yellow Pages to see how many of them there are. That is interesting - but it tells you nothing about the size of the market, or the market niche the retail business targets. It may be that the market is undeserved! Or, you might ask a competitor about the business. Don't expect an unbiased opinion!

  • THE SOLUTION

    Serious research about the industry and the franchise is absolutely required, and franchisees already in the business are an excellent source of information. Your FranNet consultant will coach you about using the UFOC to learn more about the opportunity.

  • Other articles on Columnist franchise
    If franchisors are reluctant to negotiate the terms of their franchise agreements, what is the point of having it reviewed by a franchise lawyer before signing? Consider The Following Issues BUYING A READY-MADE BUSINESS IS APPEALING TO MANY MID-LIFE ENTREPRENEURS BY JAMES PASTERNAK