Your status as either a potential purchaser or merely a curious member of the public partially determines the amount and quality of information youâ€™ll be able to discover about the financial performance of a specific franchise. Potential purchasers are able to find out about a franchiseâ€™s financial performance via the Federal Trade Commissionâ€™s (FTC) Franchise and Business Opportunity Rule. Under the Franchise and Business Opportunity Rule, franchisors are required to make a series of detailed disclosures to potential purchasers, either in the Uniform Franchise Offering Circular (UFOC) form or in the form provided by the rule.
There are three basic parts in a UFOC:
1) 23 sections that describe the aspects of the franchise program.
2) A set of the franchisorâ€™s audited financial statements.
3) A copy of every form or contract you will sign if you decide to purchase the contract.
The rule requires companies to include a list of the names, addresses, and telephone numbers of at least 10 recent purchasers geographically closest to a potential franchisee in their disclosures â€“ this way, the franchisee can obtain legitimate references. Once you have this information, you will be able to contact recent purchasers and ask them questions regarding the financial performance of the franchise you are looking into.
Be aware that the FTC does not require that disclosure statements be filed. While franchisors do provide information to potential purchasers, they are not required to file that information with the FTC. It is possible, then, that only a potential purchaser would be able to obtain detailed information about a particular franchise. However, even if you are unable to glean information from the FTC because you are not a potential purchaser of a franchise, it may still be possible to find the information youâ€™re seeking if that franchisor has filed a UFOC. Fifteen states require franchisors to provide presale disclosures, and most of these states do not provide copies of these disclosures but permit review of the documents in person by appointment.
These states are:
California (filing required)
Hawaii (filing required)
Illinois (filing required)
Indiana (filing required)
Maryland (filing required)
Michigan (only notice required)
Minnesota (filing required)
New York (filing required)
North Dakota (filing required)
Oregon (UFOC filing not required)
Rhode Island (filing required)
South Dakota (filing required)
Virginia (filing required)
Washington (filing required)
Wisconsin (filing required)