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Glance at a Franchise UFOC/FDD

The franchise disclosure document (FDD) or uniform franchise offering circular (UFOC) is a standard document disclosing extensive information about the franchisor and the franchise organization with the intent to provide the all material facts and information to the franchisee to educate them before investment. The information is divided into three sections. Section one contains a cover page, section two contains a table of contents, and section three contains 23 categories or items.

  • About the franchisor, including past and present associates and affiliates:

    This is the first information about the franchisor such as how long they have been in the business, what do they do, and their rules and regulations. They will also talk about industry competition and requirements to run the business. The franchisee gets an idea about the basic requirements, risks of the business, financial implications, and other related information

  • Bio data of key persons in the company or promoters:

    This reveals the key person’s bio data and their management skills, past achievements, and their vision for the business.

  • Litigation/Claims history:

    This reveals the litigation history of the franchisor, all directors, and executive officers, such as convictions, felony, fraud, violation of franchise laws, judgments, misconduct, unfair practice, settled civil actions, claims history, lawsuits with existing franchisees, any breach of contract with franchisees, etc.

    With this, prospective franchisees understand the value and nature of the company and also understand the possibility of risk to do business with the franchisor.

  • Bankruptcy/insolvency:

    This tells whether the franchisor or any of its executives have been involved in recent bankruptcy/insolvency proceedings. This can help the potential franchisee to assess the franchisor’s financial stability and also their capability of delivering support services.

  • Franchise fees or front end fees:

    This section tells all of the costs involved for starting and operating a franchise business, such as application fee, initial setup fees, any non-refundable deposits, any costs for initial inventory, signs, equipment, leases, or rentals. This gives an overall idea about the immediate and ongoing expenses.

  • Other fees and expenses:

    This section covers the expenses of training, assistance, royalties, advertisements, upgrades, insurance and any other fees you’re obligated to pay to the franchisor.

  • Initial investment of franchisee:

    This is an estimated investment amount to be contributed by the franchisee toward the working capital, equipment, inventory, supplies, real estate, and other associated costs to start the business.

  • Restrictions on products and services:

    This section gives sources for the following things
    • Suppliers from whom a franchisee is purchasing goods
    • Franchisee offerings of goods, products, and services
    • Franchisee’s customer list
    • Locations for the franchisee to sell goods or services
    • Use of the internet by franchisee to sell goods or services to customers in and out of their territory and the right of the franchisor and other franchisees to use the internet to solicit customers or to sell in their territory
  • Obligations of the franchisee:

    This section tells the duties and obligations of the franchisee in detail regarding purchases from the franchisor approved suppliers, and other associated information about promotions, discounts, etc. from the suppliers.

  • Financing arrangements:

    This section tells about the direct franchisor financial assistance and list of other franchise approved third parties

  • Obligations of the franchisor:

    This section tells about the franchisor contributions and responsibility to the business such as providing training to the franchisee and employees, advertisement of the business, technical assistance, selection of site, market selections, etc.

  • Territory:

    This section tells about the area of operations or the territory of operations, and future expansions, exclusiveness, etc.

  • Trademarks:

    This section tells about the trademarks, trade names, and logos, etc. which are registered with the respected authority or department.

  • Patents, copyrights, and proprietary information:

    This section tells about the copyrights, patents, and intellectual property of the franchisor.

  • Obligations of the franchisee or participant:

    This section tells about the role, participation, and responsibility of the franchisee to run the franchise business. This can also tell the limitations and restrictions of the franchisee.

  • Restrictions on goods and services offered by the franchisee:

    This section tells about the type of goods sold or offered and services and such limitations as decided by the franchisor and the obligation of the franchisee to follow those permitted services only.

  • Renewal, termination, repurchase, modification and transfer of the franchise agreement, and dispute resolution:

    This section tells in detail the terms, conditions, rules, regulations, options, reviews, rights of renewal, terminations, continuations, and transfers of the ownership of the business, etc. and also possible mediation and methods of resolving disputes between the franchisor and franchisee. This section tells about the franchisee’s obligations to the franchisor after termination.

  • Public figures:

    This part tells any compensation needed to pay third parties who are rendering services to promote the business or any management consultations, etc.

  • Financial performance representations:

    The franchisors are not obligated to show financial performance information; however in the best interest of all and to prevent franchise fraud, and also due to the possible need to meet the conditions of particular states, they will provide a financial performance summary to the franchisee which may show estimated earnings, estimated sales, claims, and source of data, etc.

  • List of franchise outlets other related information:

    This section tells about the list of all franchises ever sold, currently in operation, company-owned units, and terminated franchises during the previous three years.

    Many franchisees in one geographical area will create competition for customers. The number of terminated, canceled, or non-renewed franchises may indicate problems. On a few occasions the company may repurchase failed outlets and list them as company-owned outlets.

    If a franchisee buys an existing outlet that was reacquired by the franchisor, the franchisor must tell the franchisee who owned and operated the outlet for the previous five years. Several owners in a short time may indicate that the location isn’t profitable or that the franchisor hasn’t supported that outlet as promised.

  • Financial Statements:

    This section gives the current year’s profit and lost statements, balance sheet, and last three years’ audited financial information. This tells in what direction the franchisor is running the business, growth of the franchisor, possibility of support, and also the potential risk to the investor to join as franchisee.

  • Contracts:

    This is a franchise agreement between the franchisor and franchisee. By signing this contract both parties are legally bound to perform the situated objects for their mutual benefit.

  • Acknowledgment of Receipt:

    This is nothing but an acknowledgment that the prospective investor, who is now known as franchisee, has received the UFOC/FDD. The franchisee is not obligated to sign any agreements.

If you want to know more about the franchise disclosure statements or have further questions about franchise disclosure statements, please contact us at help@bizworldusa.com or 415-234-8833 and one of our professional consultants will contact you