This is a page we suggest you study. What separates franchising from a regular business opportunity is an important document called a Uniform Franchise Offering Circular or UFOC.
You will also need to know what questions you shoule ask a franchisor and current/former franchisees. This should help.
According to the International Franchise Association, over the past 3 years, nearly 900 concepts started franchising, 500 of those in 2005 alone.
*There are approximately 85 industries that utilize franchising.
* Some franchises have over a 90% survival rate.
* Eighty-five percent of non-franchised businesses will not survive over 5 years!
* In the first five years it is estimated by the International Franchise Association that only 5% of franchise businesses fail in the first five years.
* According to the IFA's Educational Foundation, there are approximately 760,000 franchised businesses in the United States. These businesses currently generate 9.5% of the private-sector economic output 1.5 trillion dollars and more than 18 million jobs.
* According to a recent studey sponsored by the U.S. Small Business Administration, for the first time in 10 years, self-employment rates are on the rise across the country.
* According to the SBA, women now make up 32% of the country's 12.2 million business owners.
* The International Franchise Association estimates that franchised businesses operated 767,483 establishments in the U.S. in 2001, including those owned by franchisees and franchisors. The businesses provided 9.8 billion jobs, met a $229 billion payroll and accounted for 7.4 percent of all private-sector jobs and 5 percent of all private sector payroll in 2001, the most recent year the association has statistics.
* Although franchising started with the food-service industry, only 30% of franchises are now in that industry, and opportunities cover a wide range of fields.
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One of the many great things about franchising is the Uniform Franchise Disclosure Document, previously called the UFOC or Uniform Franchise Offering Circular.
The Uniform Franchise Disclosure Document, or UFDD, is a document that contains information franchisors must provide to franchisees by law. Its contents are regulated by the Federal Trade Commission. UFDDs are deemed to be reliable and if the information provided is false, franchisors are subject to civil penalties. However, the FTC does not require filings. There are 13 states that do keep UFDD's on file, and 23 states that require business opportunity disclosure filings.
The UFDD is designed to give prospective franchisees all the information relevant to a franchise offering. It is made up of three basic parts: 23 sections (called Items) describing various aspects of the franchise program; a set of the franchisor's audited financial statements; and a copy of each form or contract a franchisee is expected to sign if he/she intends to buy the franchise.
Outline of Uniform Franchise Disclosure Document - Item 1: The Franchisor, And Any Parents, Predecessors and Affiliates
- Item 2: Business Experience
- Item 3: Litigation
- Item 4: Bankruptcy
- Item 5: Initial Franchise Fee
- Item 6: Other Fees
- Item 7: Estimated Initial Investment
- Item 8: Restrictions on Services of Products and Services
- Item 9: Franchisee’s Obligations
- Item 10: Financing
- Item 11: Franchisor’s Assistance, Advertising, Computer Systems and Training
- Item 12: Territory
- Item 13: Trademarks
- Item 14: Patents, Copyrights and Proprietary Information
- Item 15: Obligation to Participate in the Actual Operation of the Franchised Business
- Item 16: Restrictions on What the Franchisee May Sell
- Item 17: Renewal, Termination, Transfer and Dispute Resolution
- Item 18: Public Figures
- Item 19: Financial Performance Representations
- Item 20: Outlets and Franchisee Information
- Item 21: Financial Statements
- Item 22: Contracts
Item 23: Receipt Addendum for State-Specific Requirements Attachments:
A. Financial Statements
B. Franchise Agreement
C. List of Current and Former Franchisees
D. Manual Table of Contents
E. Our Agents for Service of Process
F. State Agencies
G. State Law Addendum
H. Effective Dates
I. Application for Franchise
Questions to Former Franchisees
Just as important is to interview former franchisees.
•What happened?
Why are you no longer a franchisee?
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There are three parties a prospective franchisee is going to interview. They are the franchisor, the franchisee, and former franchisees.
Questions to the Franchisor
The key is to not be afraid to ask questions.
•Find out what is included in the training program.
•Ask about assistance in the field when your franchise is up and running.
•Ask about site selection…I will be of enormous help if it does.
Questions to Current Franchisees
•In item 20 of the UFOC agreement you will find names, telephone numbers and addresses.
•How long has the franchisee operated the franchise?
•What was their background prior to becoming a franchisee.
•Where is the franchise located? Are they on a main street or a strip mall?
•Was the training the franchisor offered helpful in getting the business off the ground.
•Is the franchisor responsive to your needs?
•What is a typical day like?
•Have there been any problems that you didn’t anticipate?
•Were there any expenses that you didn’t anticipate?
•How do you feel about the quality of the product or service?
•Most franchisors have regional or annual meetings, I would ask if they attend them and what they are like.
•Are they satisfied with the franchisors advertising program.
•How much money do they spend on advertising?
•Knowing what you know, would you make the investment again.
•I would ask financial questions at the end. I would build rapport first. Kind of like a market research survey where you ask demographic questions at the end.
Have your sales and profits met your expenses? Tell me about the numbers in the business.
–You could phrase it as, how much money can I expect to make my first year as a franchisee, second year as a franchise and the fifth year as a franchisee.
•Will there be any additional working capital required after the initial fee and investment. What type of support will the franchisor provide one your franchise has opened its doors.
•How will the franchisor arrange for the supply of product to the business? Ask to see their current price sheet. In many cases, you should be getting a better price buying supplies from the franchisor.
•Ask the franchisor if the company has any plans for further expansion in the state. Has it identified any locations it plans to develop?.
•Find out how many franchises have been sold to investors in the state you are opening the franchise in the last 12 months and how many have opened a franchised business in that time..
•Find out if any franchisees have been terminated. If some have, have the franchisor detail the reasons. Have any franchisees failed or gone bankrupt?
•What kind of financing is available from the franchisor, if any?.
•Find out how disputes between the franchisor and franchisees are settled. Does it go to arbitration? Does a dispute have to be heard in a certain state?
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