How to Research a Franchise Opportunity

Lesson 3: Information, Please

A big part of the challenge of looking into a franchise is getting your hands on information. I've got some good news: The franchisor is required to package the key investment information and hand it to you in a document called a Uniform Franchise Offering Circular (UFOC). It spoon-feeds you some basic information about the franchise investment.

The first thing to understand about the UFOC is that it's actually three documents sandwiched together: 1) a 23-item narrative about the franchise offer, 2) up to three years of audited financial statements of the franchisor, and 3) the form of franchise agreement you'll be asked to sign. If you're serious about a particular program, you should carefully read this document. It's amazing how many franchise investors don't bother. It's required by law to be written in plain English, so don't be intimidated. I can tell you that every student who's completed this class has read the UFOC and understands its limitations and strengths.

First, look at the UFOC's attachments. You may have no experience reading a commercial contract or a set of financials, but these will be indispensable to your professional advisors. Take the contract to a good business attorney; let your counselor look through it and explain it to you. If you and your attorney conclude there are points you can't live with, explore negotiating with the franchisor.

Take the financial statements to an accountant trained to evaluate all those numbers. Your basic questions: Does the franchisor have the financial wherewithal to meet its commitments under the franchise agreement? And will it be around for a while? Your accountant can also use Item 7 information to advise you on your own financial planning for the investment.

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