It is important to obtain thorough information from each franchisor about
the franchise. In fact, the federal government and several states have
laws stipulating the information that a franchisor must provide. The
document containing this information is called a disclosure statement, or
may be referred to as a Uniform Franchise Offering Circular (UFOC). The
following list contains the twenty items of information that must be
supplied by a franchisor.
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Information identifying the franchisor and its affiliates and
describing their business experience.
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Information identifying and describing the business experience of
each of the franchisor's officers, directors and management personnel
responsible for franchise services, training and other aspects of the
franchise program.
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A description of the lawsuits in which the franchisor and its
officers, directors and management personnel have been involved.
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Information about any previous bankruptcies in which the franchisor
and its officers, directors and management personnel have been involved.
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Information about the initial franchise fee and other initial
payments that are required to obtain the franchise.
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A description of the continuing payments franchisees are required
to make after the franchise opens.
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Information about any restrictions on the quality of goods and
services used in the franchise and where they may be purchased,
including restrictions requiring purchases from the franchisor or its
affiliates.
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A description of any assistance available from the franchisor or
its affiliates in financing the purchase of the franchise.
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A description of restrictions on the goods or services franchisees
are permitted to sell.
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A description of any restrictions on the customers with whom
franchisees may deal.
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A description of any territorial protection that will be granted to
the franchisees.
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A description of the conditions under which the franchise may be
repurchased or refused renewal by the franchisor, transferred to a
third party by the franchisee, and terminated or modified by either
party.
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A description of the training programs provided to franchisees.
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A description of the involvement of any celebrities or public
figures in the franchise.
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A description of any assistance in selecting a site for the
franchise that will be provided by the franchisor.
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Statistical information about the present number of franchises, the
number of franchisees projected for the future, the number of franchises
terminated, the number of franchises the franchisor has decided not to
renew and the number of franchises repurchased in the past.
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The financial statements of the franchisors.
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A description of the extent to which franchisees must personally
participate in the operation of the franchise.
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A complete statement of the basis for any earnings claims made to
the franchisee, including the percentage of existing franchises that
have actually achieved the results that are claimed.
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A list of the names and addresses of other franchisees.
A franchisor may want to conduct a preliminary approval of you before
providing this information. The law stipulates that the information must
be provided before you sign a franchise agreement. Further, you must be
given a chance to review this information without interference from the
franchisor. The sooner you have this document, the sooner you can begin
your screening process. Do not be reluctant to let a franchisor know that
you are reviewing this information and comparing it with competitors.
Franchisors that are upset with this approach and unwilling to do business
in this manner are probably not the kind of organization with which you
want to be associated. A strong franchisor is not afraid to compete
directly with rivals.
