The following is a guest post by Fred Brown of FranchiseBrief.
It may take some labor to find the right franchise business so don’t throw in the towel. There are a number of sources for the information you will need before selecting the right franchise. It may take some effort to find the right franchise so, don’t compromise.
There are a number of sources for the information you will need before selecting the right franchise opportunity. Some web sites allow you to read more detailed information on a brand and give you an idea of price and royalty structure, etc. Once you have decided which industry interests you most, and seems to have growth potential in your area, contact all the franchise companies in that field and ask them for information. You will most likely need to give them some upfront information in order for the company to take you seriously and send you information. The size of the franchise should not restrict the availability of information you need regarding the company’s history and profile, market conditions, the franchisees role and the costs involved.
Franchise information that is pertinent to your investigation is disclosed in the Uniform Franchise Offering Circular (UFOC). The UFOC serves as a protection for the individual against making a decision based on information not supported by facts. The UFOC contains information regarding how the business is ran, any litigation or bankruptcy filings, investment costs and fee requirements, the franchise rules and restrictions, and contact information for each of their franchise units.
Franchisors are obligated by the Federal Trade Commission to fully disclose all material information about themselves according to federal law called the Franchise Rule. Some details might not be available until you sign on the dotted line, but they shouldn’t intentionally withhold information. Most franchisors will not make earnings claims but they will provide information with which you may extrapolate gross sales.
The UFOC is not the only place to find this information, and you certainly shouldn’t rely on it alone. You may also contact local chambers of commerce or business development organizations and see if they might supply information pertinent to your research.
Read all the information you receive thoroughly noting any first impressions and any initial questions you may have. Organize an appointment with each franchisor and when you meet them, get as much information as you can to make an informed decision. You will not only get crucial information for your decision, but will get to meet the staff that will be providing your initial training and continuing support.
Existing franchisees are your best source of information for finding out what really happens in a business on a day-to-day basis. Your attorney should look at the franchise agreement before you sign it and your CPA should review a copy of the franchisor’s income statement and balance sheet, as well as any other pertinent financial information found in the UFOC.
Although it might seem a little hasty, knowing how you want it all to end someday is a necessary part of selecting the right franchise for you. The key to finding the right franchise is self-knowledge. Because choosing the right franchise is the key to your success, choosing which franchise to purchase is as personal as choosing a home.
Fred Brown is a franchise executive with over 20 years of experience in the franchise industry. He now writes for Franchise Brief, an online directory of franchise business opportunities for sale. The website includes a franchise blog providing valuable insight and information, including a mix of news, articles and commentaries about franchising and franchise opportunities.
Michael Webster on August 15th, 2007 at 4:06 pm
The information provided about the UFOC is dangerously misleading. To wit:
“The UFOC is not the only place to find this information, and you certainly shouldn’t rely on it alone. You may also contact local chambers of commerce or business development organizations and see if they might supply information pertinent to your research.”
You can only rely upon the information in the UFOC, as a matter of franchise law.
Any other information that you seek out, don’t rely upon it. You may only use that information to contradict what is in the UFOC. Otherwise, the franchisor is not going to be legally bound by representations made outside the UFOC.
THE BIZOP NEWS on August 16th, 2007 at 10:02 am
Fred Brown and Franchise Brief Gives Very Bad Advice to Franchisees…
Here is some spectacularly bad advice, all the more so because it seems compelling. Franchise Business Opportunities | Finding the Right Information About Franchises Fred……
Fred Brown of FranchiseBrief.com on August 16th, 2007 at 11:59 am
Michael, have you read all my article? Reading your comment, I really doubt you have read (or understood for that matter) even the first paragraph.
This article aims at giving an overview of what prospective franchisees should do before buying a franchise. I am not talking about the legal aspect of the franchise purchase.
Yes, the UFOC is the only document that you can rely on, on a legal aspect.
However, I am talking about due diligence process here, and during your due diligence, you will HAVE TO go further than the UFOC.
You say: “You can only rely upon the information in the UFOC, as a matter of franchise law.”
By reading your comment, people may think that answers to all their questions may be found in the UFOC. Truth is you’re not going to find all the pertinent information you need in the UFOC.
You will have to do your own research. This research includes talking to existing franchisees… So now, are you going to say that potential franchise buyers shouldn’t talk to existing franchisees because it is not “protected by law”?? Are you going to say that I shouldn’t seek advice from a CPA or franchise attorney because it is not “protected by law”????
The point here is to find all the right information before making the decision to buy a franchise. People looking to buy a franchise should gather as much information as they can before buying a franchise!
Michael Webster on August 16th, 2007 at 1:17 pm
“The point here is to find all the right information before making the decision to buy a franchise. People looking to buy a franchise should gather as much information as they can before buying a franchise!”
That is exactly the wrong advice to give: more information will simply be used to confirm bad ideas.
If you understand how to properly read the UFOC information, and then seek to disconfirm what you believe with extrinsic evidence, that would be fine.
But don’t tell people just to gather “all the information”. It is pointless, dangerous, and useless all at the same time.
Fred Brown and Franchise Brief Gives Very Bad Advice to Franchisees at PIGASYS on August 16th, 2007 at 1:25 pm
[...] Here is some spectacularly bad advice, all the more so because it seems compelling. Franchise Business Opportunities | Finding the Right Information About Franchises [...]
FranchiseBrief.com on August 16th, 2007 at 1:55 pm
WOW! I am amazed by your reply! And I am even more amazed that this comes from an attorney (and PhD)! So basically, you’re saying “just read the UFOC, everything you need is in there, don’t look any further”.
Well, according to the FTC (Federal Trade Commission, governing body for the franchise industry), YOU are WRONG! Here is an article (http://www.ftc.gov/bcp/conline/pubs/invest/buyfran.shtm) from the FTC that clearly states (very bottom of the article) that you should seek help from various people/organizations such as Lawyer and Accountant, Banks and Other Financial Institutions , Better Business Bureau, Government Departments, etc….
If I’m going to spend $200,000 in a franchise, I need more information than the UFOC can offer me…..
You say “If you understand how to properly read the UFOC information, and then seek to disconfirm what you believe with extrinsic evidence, that would be fine”. Problem is the UFOC is a long, boring and complicated document. Any potential franchise buyer needs to seek assistance from an experienced franchise attorney to understand the UFOC.
I may not be a lawyer but what I say in my article is correct. You only give the franchisor point of view which is pretty much like saying “believe everything I say in the UFOC and hurry to buy my franchise”. You take the franchisor side because that’s how YOU make money. I take the potential franchisee side and stick to it!
Michael Webster on August 16th, 2007 at 2:52 pm
1. I only work for franchisees, and have never represented a franchisor.
2. I didn’t say believe the UFOC; what I said was that the only representations that you can rely upon are the ones contained in the UFOC. You need to understand this point of law when perform due diligence -as far as I can see, you don’t get it yet. That is very troubling.
3. The FTC document doesn’t support your claim.
4. The UFOC may be long and boring, but there is nothing boring about losing all your money. I see all sorts of people who didn’t review the UFOC, having only obtained it on discovery day.
5. I have given numerous suggestions at franchise-chat.com about how to read the important parts in a UFOC, in an effort to make the information more obtainable.