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STEP 2 - EXAMINE THE FRANCHISE AND THE FRANCHISOR

It is important to obtain thorough information from each franchisor about the franchise. In fact, the federal government and several states have laws stipulating the information that a franchisor must provide. The document containing this information is called a disclosure statement, or may be referred to as a Uniform Franchise Offering Circular (UFOC). The following list contains the twenty items of information that must be supplied by a franchisor.

• Information identifying the franchisor and its affiliates and describing their business experience.

• Information identifying and describing the business experience of each of the franchisor's officers, directors and management personnel responsible for franchise services, training and other aspects of the franchise program.

• A description of the lawsuits in which the franchisor and its officers, directors and management personnel have been involved.

• Information about any previous bankruptcies in which the franchisor and its officers, directors and management personnel have been involved.

• Information about the initial franchise fee and other initial payments that are required to obtain the franchise.

• A description of the continuing payments franchisees are required to make after the franchise opens.

• Information about any restrictions on the quality of goods and services used in the franchise and where they may be purchased, including restrictions requiring purchases from the franchisor or its affiliates.

• A description of any assistance available from the franchisor or its affiliates in financing the purchase of the franchise.

• A description of restrictions on the goods or services franchisees are permitted to sell.

• A description of any restrictions on the customers with whom franchisees may deal.

• A description of any territorial protection that will be granted to the franchisees.

• A description of the conditions under which the franchise may be repurchased or refused renewal by the franchisor, transferred to a third party by the franchisee, and terminated or modified by either party.

• A description of the training programs provided to franchisees.

• A description of the involvement of any celebrities or public figures in the franchise.

• A description of any assistance in selecting a site for the franchise that will be provided by the franchisor.

• Statistical information about the present number of franchises, the number of franchisees projected for the future, the number of franchises terminated, the number of franchises the franchisor has decided not to renew and the number of franchises repurchased in the past.

• The financial statements of the franchisors.

• A description of the extent to which franchisees must personally participate in the operation of the franchise.

• A complete statement of the basis for any earnings claims made to the franchisee, including the percentage of existing franchises that have actually achieved the results that are claimed.

• A list of the names and addresses of other franchisees.

A franchisor may want to conduct a preliminary approval of you before providing this information. The law stipulates that the information must be provided before you sign a franchise agreement. Further, you must be given a chance to review this information without interference from the franchisor. The sooner you have this document, the sooner you can begin your screening process. Do not be reluctant to let a franchisor know that you are reviewing this information and comparing it with competitors. Franchisors that are upset with this approach and unwilling to do business in this manner are probably not the kind of organization with which you want to be associated. A strong franchisor is not afraid to compete directly with rivals.

Step 2 - Examine the Franchise and the Franchisor

Step 3 - Analyze and Evaluate the Disclosure Statement

Step 4 - Investigate the Franchisor

Step 5 - Make a Decision