The FDD franchise disclosure document is the newer and better version of the UFOD but it is just as important to the process of buying a franchise.

The FDD franchise disclosure document was introduced to the franchising world by the Federal Trade Commission who are the government big shots who say what goes and what doesn’t go in the franchising universe.  Despite the fact that the development of this important franchising document was done by the government, it is a nice step forward to bring the franchising process into the new century without too much discomfort.

During the process of buying a franchise, a number of franchise agreements fly back and forth between the franchisee and the franchisor. What the FDC is working hard to make a reality in making the FDD franchise disclosure document part of the process is that every detail of disclosure takes place between the two partners in a franchise before signatures are put on the final franchise agreements and money makes the trip from one bank account to another.

While the uniform franchise offering circular served a long and distinguished term keeping franchise transactions honest and above board, it was due for a facelift.  The FDD franchise disclosure document was that facelift. One of best improvements on the old fashioned system of franchise disclosure is that it cleared up the timing of when these documents had to be delivered to the franchisor for review.  By making sure all of the players knew the rules of the game, that made the tricky process of franchise purchase negotiation just a little less tricky.

Finally franchise disclosure information can be exchanged electronically and efficiently.

Whatever other criticisms we might have of the powers that be, in some sections of the government, there are some good things happening. How this important franchise disclosure document is managed is one of those improvements. When the UFOC became the FDD franchise disclosure document, one big improvement came in how it can be shared between franchisee and franchisor.

No longer is it absolutely essential that bulky packages have to crawl through the mail system and clutter up your mailbox.  Now the franchisee can deliver the FDD franchise disclosure document to you electronically. For most people, working with documents in digital form has become as natural as having a cup of coffee.  And now you can have this crucial franchise information on your computer screen instead of all over your living room floor. This gives you all of the tools of the computer age to review and manage it.

By getting the FDD franchise disclosure document in digital form, you can search it, cut and paste from it and even pass it along to your franchise advisors and lawyers easily and without cost.  The big shots in Washington even took their upgrade to the FDD franchise disclosure document one step further and made it possible to sign the document and make it official using electronic signatures.

Naturally some care must be taken to make sure the exchange of sensitive franchise information is kept between you and the franchisee.  But those protections are entirely possible in the world of cyberspace. It is worth taking those precautions to have the improvements that the FDD franchise disclosure document has brought to the franchising process and to the franchising world as well.

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.