Armed with this information, you're now in a position to evaluate facts and figures from franchise and business opportunity sellers.
If you're interested in buying a franchise, you can expect to receive a UFOC describing the investment. This extensive document is required by federal law to be delivered to a prospective franchisee at the earlier of two events: (1) the first serious personal meeting between you and the franchise representative to discuss the franchise investment, or (2) at least 10 business days before you pay any money or sign the contract. UFOCs contain a narrative description of the offering, the franchisor, its business and legal background, applicable restrictions, estimates of the total investment, plus lists of current owners in the system as well as those who have departed the system for any reason in the prior year. The UFOC also contains a sample copy of the contracts you'll be asked to sign as well as up to three years of the franchisor's audited financial statements.
Read it! Far too many investors toss the UFOC aside or file it without review. It's chock-full of information that's vital to your decision whether to buy a franchise. If the company you're considering has a long history of litigation or bankruptcy, you'll read about it here. If the company has lost 50 percent of its system in the past two years, that should be summarized in the UFOC. The fees you pay and the total investment you make are outlined in Items 5, 6 and 7. Your obligation to purchase supplies from designated sources are in Item 8. Item 13 tells you about the company's principal trademark and whether it's federally registered. The UFOC is a tremendous help in your task of finding the franchise program that best fits your needs and shouldn't be ignored. If you're seriously interested in a franchise program, you should request a copy of the company's UFOC early in your investigation.
Is there a comparable disclosure statement for business opportunity investments? Yes, but not all business opportunity sellers are required to deliver a disclosure statement to you because of the inconsistent definitions of a "business opportunity" according to state and federal laws. Because what may be regulated in one state may not be regulated in another, you can't predict when or even if you'll receive a disclosure document from a business opportunity seller. In addition, many sellers don't comply even if they're required to by state or federal law. Ask for a disclosure statement from the business opportunity seller anyway. It should contain basic information about the company and the program being offered. If a business is required to have a disclosure statement and it doesn't, be concerned.
If you don't receive a disclosure statement from the company, conduct your own information-gathering exercise. Find out who in your area has purchased a program; get details about any training or support offered; request a copy of the company's financial statements; and be sure you know exactly what products or services are being offered for your purchase price. Check with your state's attorney general's office if you have any questions regarding the com-pany's legal status in your state.
Make the effort to collect and review information from a number of programs. How do they compare with your self-evaluation? Do you find them exciting? Can you imagine yourself actually conducting the business described? One of the most important steps in your research is talking to current owners, be they franchisees or business opportunity operators. Request a list of current owners from the seller (or look at Item 20 of the UFOC), and give several of them a call. Ask whether they've been pleased with the program, if it has met their expectations, if they've en-countered problems, and-the ultimate evaluation question-if they would make the same investment decision again. There really is no better source of reliable information about a business package than current owners. Talking to them may also provide a reality check for over-enthusiastic investors.