Uniforn Franchise Offering Circular (UFOC)

FYI – As of now UFOCs may no longer be used for franchise sales anywhere in the U.S. – FDD is the new format.

One of the most difficult steps in setting up a franchise business is the preparation of your franchise documents. There are various documents that each franchisor should have in place before they launch the business officially. Some are documents that are good to be in place since the beginning just to set all aspects of the business in a working system. Other documents are required by the Federal Trade Commission and having them ready is obligatory.

One of the most challenging documents in terms of preparation is the so called Uniform Franchise Offering Circular (UFOC), most popular as franchise disclosure document. The UFOC must be prepared in advance and audited by an independent audit company. Only then the franchisor can go ahead and register their franchise business in the states where filling is required.

In most of the cases some professional help is required when getting a UFOC ready. Whether or not you will use the services of a franchise consultant or a franchise attorney, it is good to have at least a basic idea how to write your company’s UFOC and what information should be included in it.

Uniform Franchise Offering Circular (UFOC) Key Points

• The cover page. The cover page must be prepared according to the Federal Trade Commission Franchise Rule. It must contain the name of the franchisor, the type of the business organization, principal business contact information, a sample of the primary business trademark and some prescribed statements. There must be a reference to ite5 and item 7 as well.
• The Table of Contents. A UFOC Table of Contents must refer to all items included in the UFOC, and each one should be marked with a number. All exhibits are marked with letters.
• UFOC items. Each part of the disclosure document constitutes a separate item. There are 23 items in a UFOC. For example Item 5 and Item 6 disclose information about fees, Item 7 – initial franchise investment, Item 9 states what franchisee obligations are, Item 11 provides information about the franchisor’s assistance available to franchisees, Item 13 discloses information about trademarks, Item 17 is about termination and renewal terms, Item 21 discloses franchisor’s financial statements and so on. There are specific requirements about how each part must be structured and what information should be included.
• Item 21 – franchisor financial statement. Preparing the Financial Statement is one of the most challenging tasks. It must include copies of the franchisor’s financial statements for the last three years and these statements must be audited by a third party according to the generally accepted accounting principals (GAAP). The aim is to provide prospective franchisees with more information about the franchisor financial situation. While gathering the required information is usually not a big problem, getting it audit may turn into one. Franchisors should make arrangements way in advance as late audits are the most common reason for delays. Keep in mind that the GAAP may be changed or revised and this is why you may be need to seek the advice of an experiences franchise consultant who can help you getting this part of the UFOC ready.

Franchise Disclosure Agreement Update Tips

The franchise disclosure agreement is the backbone document of all franchise operations and procedures. It is this document that guarantees your business is managed just the way you want by all of the franchisee partners as well as protects your business identity.

Preparing the franchise disclosure agreement is not an easy task. Apart from the fact that the document must address a lot of important issues, there are also some state and federal regulations that must be covered. This is why even experiences professionals often seek the help of franchise consultants and lawyers when writing or updating their franchise disclosure agreements.

Updating your franchise disclosure documents is also quite challenging. If need to update your franchise agreement, you surely can use some help. Here are a few useful tips that can help you throughout the process.

The most important aspects of updating a franchise disclosure agreement.

• Check federal and state regulations. The first thing to do when preparing or updating a franchise disclosure agreement is to check the federal and state regulations. Although you may still need to get the agreement reviewed by a legal consultant, this will help you write it or update it without missing any important details. There are many laws governing franchise operations. Although they may differ from state to state, in general you will need to update the agreement 120 days after the first year and than annually. Missing the state regulated deadlines can result in big troubles and huge penalties so check these as well.

• Check which parts of the agreement must be updated. There are some parts of the disclosure agreement that you will need to update even if there are no changes in the way your company works. For example you need to update item 2 for any changes in the key management, item 3 concerning litigation, item 4 – bankruptcy. You need to update the chapters concerning your opening costs based on recent expenses, the chapter regarding payments to suppliers, items regarding trademark and infringement information and the items concerning lists of existing outlets and terminations. All franchisee disclosure forms should also be updated.

• The annual audit. Each update should be accompanied by an annual audit. Call your audit partners as early as possible as leaving this for the last moment usually results in missed deadlines.

• Take advantage of the update. Updating the agreement is a real burden but it is also provides a great opportunity to review closely some of your operations. You are digging in forms and documents so you can easily go through all your franchise units contracts and check if any updates are needed there too. You can do the same with contracts you have with suppliers or other business partners. While updating the trademark section of the disclosure agreement, check the documents that concern protecting your grand names and logos and file or renew any applications to protect existing or new logos, brand names, trade marks or patents.