Since 1979, federal franchise law has required franchisers to give a document known as the Uniform Franchise Offering Circular (UFOC) to franchisees before any contract is signed or any money exchanged. UFOCs contain detailed information about a franchiser, which is intended to give educated information to aid a potential franchisee in deciding whether or not to invest in a particular franchise.

A revised Federal Trade Commission (FTC) rule that governs franchise disclosure documents became effective July 1, 2008. As a result, the Uniform Franchise Offering Circular is now known as the Franchise Disclosure Document. The new FTC rule imposes new requirements for the contents of a franchise offering circular but the basic substance of the UFOC remains the same.

1. Critically appraise the basics of a uniform franchise offering circular.

2. Compare several franchises before selecting a uniform franchise offering circular.

3. Ask for advice and tips from experienced professionals before choosing a franchise circular.

Action Steps
The best contacts and resources to help you get it done

Assess the basics of the franchise offering circular

The more you know, the better prepared you are to make the best decision for your franchise investment needs. To better appraise any UFOCs, brush up on the document's purpose and its requirements. This way you won't be surprised by anything as the process progresses and you'll catch any missing or extra bits before moving forward.

I recommend: Check out UFOC basics, guidelines and forms at the North American Securities Administrators Association (NASAA) website. NASAA periodically reviews and publishes the uniform franchise offering circular. A UFOC primer like Franchise Help provides useful information, allows you to search for franchise disclosure documents and offers a free newsletter.

Compare potential franchise opportunities before signing a uniform franchise offering circular

All franchises are not created equal. From the amount of money required for investment to the type of support you receive from the parent company, there are a myriad of things to consider. Review more than one UFOC and compare your options before signing on the dotted line.

I recommend: Frandata provides a franchise directory, franchise offering primer information, and a search engine to look up franchises by name and industry. Entrepreneur.com ranks the top 500 franchises in the United States and supplies links to request more information from many of them.

Contact an expert to help you understand the franchise offering circular's fine print

Carefully review and understand the UFOC before buying a franchise. The FTC does not review individual circular offerings for accuracy nor does it evaluate whether the information disclosed by the franchise is true. To make matters even trickier, each state has its own set of laws pertaining to franchises. While franchisees are subject to civil penalties for false information obtained in the uniform franchise circular offering, save yourself the time and trouble if and consult a professional to advise you of what you're getting into before you complete the deal.

I recommend: Locate franchise attorneys, consultants, service providers and minority opportunities at Source Book Publications. Visit FranchiseHandbook.com and select one of their many featured consultants who can help you read through your UFOC to make sure your investment is a good one.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Several non-profit organizations assist individuals in making the most of their uniform franchise offering circular. Take advantage of these organizations, especially if it is your first time starting or owning a business.

If you're in the market for a franchise, know this: Since 1979, franchisors have been required by the Federal Trade Commission to provide prospective franchisees with a Uniform Franchise Offering Circular (UFOC) before any contracts can be signed or any money can exchange hands.

This valuable and voluminous document contains detailed information about the franchise, which will help you evaluate the business to determine if it's right for you. The document contains three main components:

1. Detailed information about 23 items that provide an overview of the franchise
2. Audited financial statements
3. The franchise agreement and other contracts

Action Steps
The best contacts and resources to help you get it done

Understand what's in it

A standard UFOC covers the following: key executives and directors, fees and costs, any past or pending bankruptcy or litigation, restrictions on sources for products or services, any financing available, training and support offered, restrictions on territory or expansion, restrictions on selling or transferring ownership, a list of outlets, earnings and financial status, obligations for both the franchisor and the franchisee, plus renewal and termination terms.

I recommend: FRANdata.com provides a list of the 23 items included in a UFOC.

Compare UFOCs

Compare UFOCs from competitors or franchises in like industries to help you evaluate the opportunity.

I recommend: For a fee, FranchiseHelp.com and FRANdata.com provide access to thousands of UFOCs or select portions of UFOCs.

Scrutinize earnings claims

Item 19 provides a detailed look at earnings, which gives you an opportunity to forecast sales, expenses and profits. Be aware that the earnings claims are considered estimates and may not reflect actual sales in your geographic region. In addition, the earnings statement is voluntary, and a franchisor may leave it blank.

I recommend: UFOCS.com offers earnings claims packages for retail, food-service and service industries and maintains a list of companies for which they have earnings claims statements available for purchase.

Discover details on past and present franchisees

Item 20 includes a somewhat confusing list of projected openings and transferred or cancelled locations. However, the most important element is a list of current and past franchisees, their locations and contact information. These franchisees are your link to inside information about the franchise that can't be found in the UFOC.

I recommend: Purchase Item 20 from WorldFranchising.com and contact existing franchisees to ask them what they like about the franchise and what they would change.

Hire a franchising attorney

Since 1993, the UFOC has been required to be written in plain English rather than legalese. However, the sample contracts found in Item 22 are legal documents that may need some deciphering. In addition, although the UFOC is required by law, no governing body reviews the document for accuracy.

I recommend: Retain a franchise attorney who's experienced in reviewing UFOCs to help you spot possible inaccuracies and to explain contracts. Search for one at FranchisingAttorney.com.

Bring in an accountant

Take the audited financial statements found in Item 21 to an accountant, who can review them and give you an idea of the financial health of the operation.

I recommend: Search for an accountant at Accountants World or the CPA Directory.

Ask if it's negotiable

The terms in a UFOC are usually non-negotiable. However, a few franchisors will negotiate certain terms so be sure to ask if there's any leeway.

I recommend: If the franchisor does offer negotiable terms, ask existing franchisees if you can see the amendments to their franchise agreements to get an idea of the terms available. View a sample page of a franchise agreement at FranDocs.com.

Find out if you qualify financially

You may need to qualify financially before receiving a UFOC from a franchisor.

I recommend: Determine your net worth and capital worth with calculators from Franchise.com.

Tips & Tactics

Helpful advice for making the most of this Guide

• •  Read it again: Experts suggest reading a UFOC at least three times before making a decision.
• •  Do your own homework: Don't rely solely on the information presented in a UFOC to make your decision. Conduct your own research to determine the viability of an opportunity.
• •  Consistency counts: Make sure the UFOC you review is the same franchise agreement you'll be signing.