How to Create Disclosure Statements for a Franchise

As a franchisor, your job is to create successful relationships with investors who will sell your products and services and pay you royalties based on their sales. To create the best unions between franchisor and franchisee, it's important that each party has all of the information they need to make a careful and informed decision. From the franchisees' perspective, the disclosure statements are a great way to learn more about the franchise before making a commitment.

Instructions

Difficulty: Challenging

Things You’ll Need:

• Business plan
• Accountant
• Other franchisee's information
• Franchise plan
• Lawyer

1. Prepare to write your Uniform Franchise Offering Circular (UFOC) by formulating a solid business plan and franchise plan. The business plan will outline your business goals for the next 5 years, while the franchise plan will uncover your specific goals for the franchise itself.
2. Go over the details of your business and franchise plans with your accountant, who'll help you determine the plausibility of your plans and outline the facts that need to be included in this disclosure agreement.
3. Include the names, addresses and telephone numbers of other franchisees in the disclosure statements. Other important pieces of information include a fully-audited financial statement, prior bankruptcies and the estimated cost of starting and maintaining the franchise business.
4. Make the disclosure an effective sales pitch, hooking the investor on each page and solidifying interest in your business venture. However, make sure that you're only trying to attract high-quality investors who will represent your company well.
5. Determine how much you want to reveal in your disclosure statements. While there are over 20 mandatory categories of the UFOC, franchises aren't required to disclose their earnings claims statement. In fact, many franchises are choosing to omit this information altogether, and provide it only if interested parties request it.
6. Allow ample time with your attorney for discussing the disclosure statements and ensuring that all information is correct, easy to understand and protective of your best interest. It should also offer a fair representation of your franchise.

Tips & Warnings

• The most important disclosure document you'll create is the UFOC. This document has strict guidelines set by the Federal Trade Commission and offers more than 20 categories worth of information to potential investors (see Resources below).
• The UFOC must be updated annually. Each franchisor has 90 days after the year's end to revise the company's disclosure documents and put them into circulation.
• Each state has different laws regarding franchise businesses. Make sure to review your state's individual franchise laws before selling your business.
• If you don't use clear and concise language when constructing all disclosure agreements, you'll scare away many high-quality franchisees, and you could even leave yourself vulnerable to litigation. Work with your franchise lawyer to create a document that not only spells out the facts, but also grabs the attention of the investors that you're hoping to attract.