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.