“What Happened To That Thing They Called The ‘UFOC’?”
May 5, 2009 6:00 am Leave your thoughtsI hear this question quite a bit:
“What happened to the thing they called the UFOC, or Offering Circular? Why don’t they have that anymore?”
Well, they do!
UFOC is now FDD
But in July 2007, the U.S. Federal Trade Commission renamed the Uniform Franchise Offering Circular (UFOC) the Franchise Disclosure Document. The UFOC is now the FDD!
Since 1979, U.S. franchisors have been required by federal law to provide a disclosure document. It’s provided free and without obligation to qualified franchisee prospects. This is a good thing — and it’s one of the reasons for the success of franchising in America.
Important document to read, more than once!
The FDD provides much needed information to a prospective franchisee and it’s important to read it — perhaps several times — before you invest your money. It’s written, by law, in plain English, so if you can read at a 9th grade level, you’ll be able to understand (most of) what the document says. (Between you and me, when I buy a franchise, I still want my lawyer to review the FDD with me).
Along with the name change, the FTC included some other changes for the FDD:
First meeting between franchisor and prospect
Previously, the franchisor was required to provide a prospective franchisee with the disclosure document at their first “serious” meeting to discuss the purchase of a franchise. That was changed — good thing, because no one knew what “serious” really meant.
A prospect and a franchisor can now meet as many times as they choose, but the prospect cannot buy a franchise until he or she has had the FDD in hand for at least 14 calendar days. That’s a minimum number of days — so there’s plenty of time to review the document. (By the way, the number used to be 10 business days).
Franchise agreements issued 7 days in advance
An FDD will often include a franchise agreement, which is the document that the franchisor and franchisee sign. It’s the franchise license. Neither party signs the FDD, it’s just an explanatory document that precedes the franchise agreement, which, by the way, is written in legalese and requires an attorney to understand it!
Franchisors are required to provide a prospect with a final franchise agreement at least 7 calendar days before executing the document. (Used to be 5 business days).
Electronic delivery is now okay
Prospects can receive a FDD electronically, if the franchisor makes it available in a downloadable format. There’s no requirement to do so, but it’s much more efficient (and green!). Signatures are acceptable in a variety of ways including security codes, passwords, and electronic signatures.
Requires the franchisor to tell more
The FDD requires franchisors to provide data about sales, terminations and transfers of franchises — and that’s a good thing! It will help a prospect determine the longevity of franchisees in the network. If a high number of franchisees are exiting the network, the prospect will want to ask why.
But earnings claims are not required
Franchisors still do not have to make earnings claims, and critics say this is a major shortcoming in disclosure law. More franchisors are. in fact. completing Item 19 of the FDD, which provides financial performance data. However, even if the franchisor completes Item 19, make it your business to discuss your earnings potential with existing franchisees, and your advisors.
All and all, the FDD provides the key information that you need to evaluate a franchise investment. Take advantage of it!
Register now for free tele-seminar
. . . Register immediately for my free franchise tele-seminar: How To Buy A “Hot” Franchise And Not Get Burned! Date is May 6, 2009, and you can subscribe while slots are still available . . . you’ll love the fantastic give-away. Read about it here.
Photo image by: Dwonderwall
Tags: Buy a Franchise, buy franchise, franchise opportunity, franchise trends, hot franchise, trendy franchiseCategorised in: Buy a Franchise
This post was written by Dr. John Hayes