How to Read a UFOC

The Uniform Franchise Offering Circular (UFOC) is an essential document to evaluating the business opportunity for a potential franchisee. The UFOC is also heavily regulated, which means it is a complicated document. But a lay person can pick through the document to find the important information most relevant to the potential business owner, if he knows what to look for.

Difficulty: Moderate

Instructions

1. Read through the entire document. Items 5, 6, 7, 10 and 19 will be particularly important in the first reading to gauge whether you have the financial stability to invest and profit from this franchise. Read each item once to familiarize yourself with what's presented (see Resources below).

2. Compile your list of questions. After the first read-through, write out a list of questions you have about the system or points that were raised from reading the UFOC.

3. Re-read the document. Go back through each item to see if the UFOC answers some of the questions you have compiled. Make new notes of additional questions that you have or information that you would like to have that is not provided in the UFOC.

4. Call an attorney. Always have an attorney who is familiar with UFOCs review the document from any franchise you are considering investing in. While UFOCs are standardized documents, they are created by the franchisor. An attorney can tell you whether the language of the UFOC is unusually slanted to the benefit of the franchisor.

5. Compare UFOCs. To find out if you will get your money's worth from a particular business opportunity, obtain copies of UFOCs from similar companies. Find out what your prospective franchise charges for royalties or monthly fees, administrative services and start-up costs.

6. Call the franchisees listed in Item 20. Franchisors are careful to avoid stating what the potential revenue of any unit may be, but you may be able to determine future revenue based on current franchisees earnings. You can also double-check that the information the franchisor is providing in the UFOC as far as training and support is accurate. The best research you can conduct is to talk to current and former franchisees to assess the real opportunity.

7. Ask the franchisor any remaining questions. Keep in mind that the UFOC is an official document and cannot be changed. However, the franchisor may be able to clarify or explain the information provided in the document. Be certain that all your questions regarding the UFOC have been answered to your satisfaction before investing in a franchise opportunity.

Tips & Warnings

• Very little objective information exists in the media about particular franchise businesses. As you research your opportunities, be wary of articles or stories about successful franchisees in the system-most of these stories are public relations articles printed in local newspapers or industry magazines.

Resources

• How to Read a UFOC