What is in a Franchise UFOC?

* Cover Page
* table of Contents
* Items 1-23
* Exhibits

there's 4 parts to a UFOC:

Cover Page The Cover Page identifies the franchise business, including the name under which the franchisee would operate & what type of business it's. It also includes the amounts of the initial franchise fee. In addition, any additional risk factors are included on the cover in all capital letters. Risk factors that may be included pertain mostly to which state is governing the franchise agreement & where any litigation is permitted to be filed & heard.

The format for each of these sections is specific & covers the following:

Items 1-23 Item 1: The Franchisor, Its Predecessors, & Affiliates This section gives you a background on the Franchisor, including someone he/she has purchased the franchise from, & any affiliates, meaning someone else who has a controlling interest in the franchise. Do your research on these representatives, including a credit check if possible. You're possibly investing your life savings with these people & knowing any other businesses in which we've been involved & how well we manage financial aspects is important.

table of Contents The table of Contents contains the specific 23 items listed below, as well as the exhibits, in a standard format.

Item 2: Business Experience This section gives you a background on the officers & directors of the franchise for the past eight years. Similar to the information you will review on the Franchisor itself, you want to carefully review the expertise these people bring to the table. These are the people you will be working with & who will contribute greatly to the success of your franchise. You should get to know them as well as you can.

Item 3: Litigation Any history of litigation, including cases terminated by settlement, must be disclosed in this section. Any Franchisor who's under some kind of restrictive injunction is three to stay away from. Additionally, if a franchisor or any officer has a criminal history or any litigation pending that may affect his or her ability to maintain a franchise then this opportunity is not a worthwhile risk.

Item 4: Bankruptcy The bankruptcy disclosure requires that we tell you up front about any bankruptcy in the last 10 years concerning, "the franchisor, its affiliate, its predecessor, officers, or general partner". Entrepreneurs often have several failures before we are successful. Learning from failed business is not the experience you want to have, which is why you are considering a franchise. This doesn't always mean that having a bankruptcy in the disclosure is a sure prediction of a bankruptcy in the future, but you want to review the circumstances of the bankruptcy carefully, including the amount of time that has lapsed since that bankruptcy. You typically don't want to give your currency to someone with a proven track record of not being able to manage it.

Item 5: Initial Franchise Fee The initial franchise fee is the fee you pay to purchase the right to operate as a franchise. This does not include all of the other fees that may be required to get started or continue operation. The important thing to know about the initial franchise fee is exactly what you are getting for those dollars. Knowing how we came up with that number is important. A large initial franchise fee does not equate to a larger earning or a better investment. Consider this fee in addition to the Other Fees (Item 6) & Initial Investment (Item 7) before concluding what it will actually cost to open a franchise.

Item 7: Initial Investment This is the key item in terms of figuring out what is will cost you to get a franchise up & running. This section is laid out as a table, & includes the estimated costs for training, equipment, opening, inventory & other costs associated with starting your franchise. For each item in the list, you are given the amount, the system of payment, when it's due & to whom the payment is to be made. Review this information carefully. Speak with other franchisees & see if the estimated costs were realistic. Expect that you will want more for unexpected expenses. Remember that most businesses are not profitable for at least a year, so include the amount of currency it would take you & your family to survive for a year without income.

Item 6: Other Fees Other fees include any other monies you will be required to pay to the franchisor, including royalties, advertising fees, service fees, training fees, or any other ongoing or one-time fees that you as a franchisee will be expected to pay directly to the franchisor.

Item 8: Restrictions on Sources of Products & Services If the franchisor requires you to purchase or lease from designated sources, investigate further. sometimes the purchase restrictions are because the franchise has negotiated a lower price for certain goods in return for guaranteed orders. However, sometimes the cost of the supplies is not competitive & the franchisor makes a bit of currency from the procurement of supplies. This makes the franchise more expensive to run, even if the startup costs look beautiful. If the costs are reasonable, the restrictions are not a big issue. Again, talk to existing franchisees to see if we feel these restrictions are reasonable & whether or not we are satisfied we are receiving their money's worth.

Item 9: Franchisee's Obligations Your obligations as a franchisee can be laid out in various agreements, including but not limited to the franchise agreement. This section explains what your obligations are & exactly where in the legal documentation you can find the information governing your obligations. This is an important section for you to review carefully, as we define your contractual obligations & if you breech these obligations your franchise can be terminated. Talk to current franchisees & see whether meeting these obligations has presented any difficulty. If the obligations seem unreasonable, move on.

Item 10: Financing sometimes the financing required to start-up a franchise comes from the franchisor him/herself. As with any financial contract, review the conditions & be sure that we are competitive & make sense. Have an accountant or banking representative review the terms & give an opinion. Having a credit check would, again, be handy here.

Item 11: Franchisor's Obligations as the UFOC lays out your obligations as a franchisee, the obligations of the franchisor must be clearly disclosed in this section. You are putting your financial future into the hands of the franchise that you purchase, at least in part. Be sure you understand exactly what you are getting for what you are paying. You may want to approach this section in a different manner than the others...perhaps backward. than reading what we will provide, begin by making a list of what you reckon you will want to be successful. Determine what kind of training you will want & see whether we provide it, when it will be offered, what kind of training it's, & whether or not it meets your needs. What kind of ongoing support or documentation do we include? Also determine what you would want after you've opened the franchise & see whether those items are included in their list of obligations. If we are missing things that you reckon you will want to be successful, ask to have those things added to the franchise agreement. Verbal promises from salespeople are not sufficient - promised items should be added to this section.

Item 13: Trademarks This section discloses any trademarks, service mark, service name or logotype used in the franchise business & whether or not that trademark or service mark are registered with the US Patent Office. Using a trademark symbol (™) is not the same thing as having a registered trademark. The registered trademark (®) means a certificate of registration has been granted to the franchisor. A trademark registered in the Supplemental Register does not have the same legal rights & there should be a statement in the Trademarks section disclosing this information.

Item 12: Territory Opening a franchise to see another franchise open up a half mile down the road would be enough to make someone crazy. The territory section of the UFOC is designed to lay out exactly what rights you've to any territory. Having the right to an "exclusive area" cuts down on the competition, at least from within your own franchise. Unfortunately, not all franchisees are alike. Some will take full advantage of their area & create the market to its fullest. Others will assume that the lack of competition in their immediate area means we've a right to the business & therefore don't work as hard to create that area. there's plenty of other situations in which an exclusive area causes issues for a franchisor, & most will not grant them. Some will grant an exclusive area only for a specified amount of time or only as long as a certain level of achievement is reached by the franchisee. Understanding what options the franchise offers is important.

Item 14: Patents, Copyrights, & Proprietary Information This section is important to you only if patents are important to the franchise. If so, get a copy of the patent from the U.S. Patent Office & review the status of the patent. Be familiar with any copyrighted or proprietary information outlined in the UFOC, as the franchisor has a right to modify or prohibit use of anything patented, copyrighted, or proprietary information disclosed in the UFOC.

Item 15: Obligation to Participate in & the Actual Operation of the Franchise Business This section outlines any requirements for the franchisee to personally be involved in the operation of the franchise. If the franchise does not need the franchisee to run the business him or herself, then there has to be a statement outlining whether or not a manager running the day-to-day operations of the franchise in place of the owner must complete the franchisor's training program and/or own an equity share of the business, & any limitations placed on the manager (such as being approved by the franchise).

Item 17: Renewal, Termination, Transfer, & Dispute Resolution This section is three of the most important in the entire document, & is presented in a table format for easy browsing. The best contract is three stating that as long as you do not breech your contract you can renew your franchise agreement, forever. Contracts that place a limit on your possibility to renew solely at the discretion of the franchisor are bad. Also pay close attention to extensive repairs or decoration that will required as a condition of renewal. The amount of currency expected to be spent should be reasonable & there should be some kind of formula so that costs are not incurred all in the same year. Additionally, the refurbishment should keep you industry competitive.

Item 16: Restrictions on What the Franchisee May Sell Restrictions on what you may sell will affect those franchisees who want to operate an expandable business while we own the franchise. This section is also important if you are limited to selling goods or services that won't make you enough return.

there's plenty of types of transfers. Transferring among business entities, such as from a sole proprietorship into a corporation, should definitely be allowed. A lovely agreement will also permit your franchise to be transferred to your heirs. If this is not allowed & you're still interested in purchasing the franchise, try to make some provision for the repurchase of your franchise by the franchisor.

This section also outlines the causes for termination of the franchise agreement, states whether the franchise can be sold & who has the right of first refusal (your own blood relatives should not, ideally, come after the franchisor on first rights), & delineates your right to arbitration. Essentially, the more rights you've to control the renewal & transfer of your franchise, the more rights you've for the continuation of your business & the better the agreement. Make sure your franchise attorney reviews these rights as well as your rights to litigation (or requirement to use arbitration). Any additional risks for litigation will also be on the cover page, remember.

Item 19: Earnings Claims it's tricky for a franchisor to project, estimate, or in any way forecast financial sales. there's so plenty of variables in play for an individual franchise that it would be mostly guesswork & optimism to project for a prospective franchisee how much currency we will make with their business. Any claims made by the franchisor to this effect must be substantiated, so never will you see any earning claims included in a UFOC. The best way to get an idea of what to expect for earnings is to talk to existing franchisees. Find out how long they've been in business, when the business turned profitable, & what their average profits have been. Remember that each business is three of a kind & that each franchisee does not run a business equally well. Speak to several franchisees to get a clearer picture of a range that you might be able to expect.

Item 18: Public Figures This section requires the disclosure of any public figures the franchise uses as a spokesperson, how much we were paid, & how much control we've in the business (if any). Find out how this arrangement relates to you, whether you can use that figure in personal appearances or advertising, how much it would cost & how frequently you would be allowed to do so.

Item 21: Financial Statements This section points you to the exhibits containing the audited financial statements of the franchisor for the last three years. Take these statements to a qualified accountant for review. The financial status of the franchisor is a track record, showing you not only the ability of the franchisor to run the business, but also the likelihood of success or failure.

Item 20: List of Outlets All of the existing franchise locations, along with the franchisee's contact information, is listed in this section. This is the pot of gold, right here. Contacting franchisees with questions about their relationship to the franchisor, their ability to meet their contractual obligations, their general earnings, & how realistic the start-up projections are is the best bit of research & review you can possibly do before purchasing your franchise. Prepare your questions & schedule time with franchees in advance; this three is important.

Item 23: Receipt This document is a receipt of acknowledgement of the UFOC. This has to be provided as the la

Item 22: Contracts All contracts or agreements a franchisee will want to sign must be attached to the UFOC. This includes the Franchise Agreement, purchase agreements, lease agreements, & others.