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The Federal Commission (FTC) mandates that the prospective franchisee must first acknowledge the receipt of the Universal Franchise Offering Circular (UFOC) 14 days before the Franchise Agreement can be signed or any money paid to the franchisor. What is the connection between the FTC and franchising?

The FTC was created in 1914 – an era that witnessed the rise of monopolistic business trusts that stifled competition. The FTC is charged with the mission to prevent unfair business practices that thwart competition in commerce. Over the course of the 20th century, the US government enacted more laws giving the FTC stronger authority in pursuing and enforcing “unfair an deceptive acts or practices.” It is the only federal agency that has jurisdiction over both consumer and competitive business interests in various sectors of the economy. Basically, the FTC acts as a watchdog to stop actions that interfere with consumers’ right to make an informed decision regarding business opportunities.

Since franchisors compete against each other to recruit franchisees, the FTC regulates how franchisors present themselves and their business proposition to prospective investor franchisees. The franchise investment process therefore must conform to the FTC’s Franchise Rule, which governs what franchisors must disclose to prospective franchisees before any contractual agreement is signed. This rule theoretically eliminates unfair or deceptive practices during the franchisee recruitment process.

The UFOC and 14-day rule are direct results of the FTC Franchise Rule, which as a trade regulation rule,  has the full force and effect of federal law. Federal and state courts have ruled that the Franchiser Rule can only be enforced by the FTC, who has the authority to seek injunctions, civil penalties, and compensation for consumers when businesses engage in deceptive practices.

The Franchise Rule basically imposes six different requirements regarding “advertising, offering, licensing, contracting, sale or other promotion” of a franchise:

1. Basic Disclosures: the Franchisor must give investors a basic disclosure document (the UFOC) 14 days before any contracts can be signed.

2. Earnings Claims: if the franchisor offers earnings claims, there must be a reasonable basis for doing so, and the proof that validates the claim must be supplied to prospective franchisee.

3. Advertised Claims:  applies to advertisements that make earnings claims, and mandates that such ads include the actual percentage of existing franchisees who have realized those earnings.

4. Franchise Agreements: the Franchisor must supply its standard Franchise Agreement along with any other contracts when it delivers the basic disclosure documents.

5. Refunds: Franchisors must refund deposits and initial payments according to the conditions regarding refunds detailed in the disclosure document.

6. Contradictory Claims:  this prohibits franchisors from making claims in any promotional materials or by word of mouth that contradict the information in the disclosure document.

Failure to comply with any of the six requirements makes the franchisor liable for Franchise Rule violations. Beyond these six basic requirements, the Franchise Rule also stipulates specific disclosures about the business relationship between the francshisor and franchisee, investment and fee requirements, trademark usage, and more.

The UFOC is the disclosure document intended to meet compliance with the FTC’s Franchise Rule. The FTC does have its own disclosure form, but most franchisors rely on guidelines established by the North American Securities Administrators Association (NASAA) for detailing the 23 items found in the UFOC.

A prospective franchisee should look at the UFOC as a combination Bible, dictionary, and encyclopedia that defines the franchise business, operations, finance, marketing, support – all the responsibilities and expectations of both the franchisor and franchisee. The NASAA requires that a UFOC be written in “plain English” and, though this seems helpful and logical, any prospective franchisee should seek legal advice from, and a thorough review of the UFOC document, by an lawyer experienced in franchise contract law.

The Franchise Agreement is a legal contract and is actually part of the Universal Franchise Offering Circular (UFOC), which is supplied to prospective franchisees. The UFOC spells out everything about franchise operations – processes, marketing, costs, support etc. in 23 specific items. The Franchise Agreement is included in item #22, along with any other contracts that must signed, such as real estate leases or financing forms. The Franchise Agreement is attached as an “exhibit” and has blank spaces to be filled in preparation for the franchisee signing the contract.

The UFOC ends with a receipt that carries no obligation to the prospective franchisee – it just validates that the franchisee has received the UFOC. No money can be exchanged or a Franchise Agreement signed until ten days after acknowledgment of receipt of the UFOC. There is also a five-day waiting period for the signed Franchise Agreement once it is completed

After a prospective franchisee has reviewed the UFOC with an attorney and accountant, and is ready to sign the Franchise Agreement, the franchisor will fill in the blanks on the Agreement. These will stipulate in dense legal jargon the relationship and obligations between franchisor and franchisee. Once the Agreement is filled in with the details, the franchisee has five days to return the signed contract.

As part of the UFOC, which the franchisee acknowledges receiving, the Franchise Agreement spells out specifics on the initial franchise fee, ongoing fees and royalties, training and length of the contract. All of these should be examined and compared to the UFOC items. The Franchise Agreement should reinforce the obligations and expectations described in the UFOC.

Because the Franchise Agreement is the binding legal contract between the two parties, any deviation from the UFOC must be added to the Franchise Agreement. For instance, if the Franchisor is willing to make an exception regarding premise requirements, or if the Franchise Representative promises extra training or support, then make sure it is in the Franchise Agreement contract. Verbal promises are worthless. The Franchise Agreement, as part of the UFOC, implies that everything stated in the UFOC is part of the Franchise Agreement. If the franchisee negotiates exceptions that differ, even if only slightly, from the UFOC descriptions, then these negotiated exceptions must be detailed in the Franchise Agreement.

The Franchise Agreement is the legal document that governs the relationship between the Franchisor and Franchisee. In the case of any disputes, the Franchise Agreement is the ruling factor about the outcome. That is why it is so important to have an experienced franchise attorney review the UFOC and compare it with the Agreement terms.  The Franchise Agreement should match the UFOC items regarding fees, territory, training and duration of the franchise contract, and any exceptions to those items must be described in specific detail within the Agreement.

To find an attorney knowledgeable about franchise contract law, visit this link.

Click on the Franchisee tab at top, then go the listings at left. At the bottom, you’ll see a tab for attorneys. This takes you to a state-by-state directory of franchise lawyers.

Another helpful source for information is the International Franchise Association.

The Federal Trade Commission oversees franchise contract law, and the Agency’s web site has a Consumer Guide to Buying a Franchise, plus a Franchise Rule Compliance Guide.

The purpose of this article is to provide general information about recent developments in franchising. Nothing in this article constitutes legal advice, which can only be obtained as a result of personal consultation with an attorney.

For most small and medium sized franchise businesses, environmental concerns can take a backseat to the very real need to ensure profitability, sustainability and growth of the franchise business. However, most franchisors and franchisees are unaware of the advantages of going green can have for the long term profitability and success of the franchise.

In many cases, you can actively reduce your businesses “carbon footprint” without costing your business much money. Not only will you benefit from introducing green initiatives to your business by saving money on energy and heating bills, but you will also increase your consumer base.

Take a look at the following inexpensive but highly effective green business measures you can introduce:

1. Make sure all lights are switched off when leaving the workplace and turn the thermostat down by 1 degree and you will cut your heating bills by uo to 10%.

2. Computers should be switched off when not in use. Millions of dollars are wasted each year by PC’s left on unnecessarily.

3. Fitting low cost energy light bulbs which can last for 8,000 hours will have a dramatic impact on your savings for your electricity bills.

4. Encourage staff to only print documents and emails when absolutely necessary and re-use paper that’s printed on one side.

5. Set up a company recycling scheme for all recyclable waste and instead of disposable foam cups for coffee and plastic cups for water, use reusable cups and glasses.

6. Encourage staff to use public transport. Or set up company organized car-sharing schemes; grants or loans for bicycles and secure on-site parking can all help minimize the carbon damage created by commuting.

7. Franchise businesses with fleets of vehicles should consider investing in biodiesel about 60% less carbon than normal.

8. Better use of IT in the office can reduce the money spent on business travel expenses and the carbon omission. Why not set up video conferencing in your work place, which reduces the need for colleagues to travel and increases your business profitability.

9. Re-use and recycle electrical equipment and reduce the amount going to landfills. Old computers can be donated to charity for use in developing countries but make sure you securely delete sensitive data before recycling.

10. Other unwanted office furniture ad supplies can be sold- perhaps on eBay, an online resource for giving items away.

By implementing energy saving measures in your workplace and providing incentives for your staff to cooperate with your “green business” initiatives will save you up to:

- 20% on your bills;

- enhance your business reputation as a “builder of eco-friendly measures” and;

- drastically cut your carbon footprint.
Industry analysts argue that not only will you save money on your energy bills by introducing some of the measures outlined afore, but you will also increase your brand recognition with consumers.

According to industry analysts, consumers regularly contemplate about their own carbon footprint and how they can make a difference to tackling climate change. These consumers, as a result are more likely to buy from a company they think is taking action to tackle climate change than a business that is not.

So if you’ve turned green, or you are going to turn green, you should shout about it and you could boost your profits…

View the following eco-friendly franchises that are making these changes for the better:

Catridge World;

Clean Air Lawn Care;

Envirospect;

FiltaFry;

Pizza Fusion…

Franchise Reporter

Why are some franchises more successful than others? Part of it comes down to choosing an established company with a proven track record and a good business reputation. It is also important that the franchise is a member of the International Franchise Association (IFA) and runs its business in accordance with the best practices laid down by the IFA and other administrations. However, once you have chosen the right company- what do you need to do to make it a success?

1. Establish Good Working Relationships…

Firstly you should establish from the outset a good working relationship with your franchisor. Your franchisor will be able to assist you when you want queries answered. A franchisor will have the experience and past knowledge of working with the franchise system and franchisees, so it is vital you listen to their advice…

2. Monitor Cash Flow

The next important thing to watch out for is your business cash flow. Keep looking back at your business plan and assess your initial financial forecasts and projections made. These forecasts are an excellent indicator of your financial situation and you should keep as close to the financial statements made as possible. Careful planning and monitoring of business cash flow in the early days of the business will ensure your long term success…

3. Recognize Your Strengths & Weaknesses

It is important that your recognize your own strengths and weaknesses and to use them to your advantage. If you lack certain skills that are required to operate the business successfully, for example, accountancy, you should employ someone else to take care of aspects of the business you are not 100% confident with.

Delegating responsibility can be one of the most difficult tasks to undertake in a new start up business, but it may be a vital task to delegate if you are struggling on your own skills and experience…

4. Market Your Franchise Business…

You invested in this franchise business because you are passionate about the business model, its products or services? Right? Well then you are the best person to market your business. There is no more effective way to attract customers to a business than someone’s passionate interest or belief in the product or service it provides. Utilize this passion and interest to the advantage of your franchise and make it work for you…

5. Networking

Establishing effective networks with the franchisor and existing franchisees will be crucial to your long term success. Regular phone calls, meetings, coffee lunches and annual conventions with your franchise network will not only motivate you, but these events will give you the opportunity to discuss any problems or positives you have about the franchise opportunity. Building a strong support network is an excellent way of increasing the success of a business…

These five points are some of the main characteristics that you should focus on when you are setting up and growing your franchise business. But remember the reasons why you decided to invest in a franchise in the first place as this will motivate you when times get tough.

And most importantly, HAVE FUN- you are the creator of your own destiny…

Franchise Reporter

Before you decide to invest in a franchise or business opportunity, you should first ask yourself some important questions relating to your personal ambitions, goals and desires, your familial and social obligations and your financial expectations should all be assessed before taking the plunge and setting up your own business.

I have put together a brief self assessment questionnaire you can take to determine what skills and abilities you have; financial and personal obligations you need to consider; before embarking on your new franchise venture…

So here goes!

Q.1 What motivates you in your current career/job? What personal motivation will you bring, if any, to your new business venture?

Consider the fact that you will require bucket loads of motivation and strength to keep your business operating successfully. There will be times when you feel like giving up, but when you recognize what motivated you in the first place to run your own business, this should see you through the “bad times” and motivate you to keep going…

Q.2 What skills and/or abilities do you bring to the franchise business?

This is an important question to ask yourself. Cross off as many of the skills listed below that are relevant to your own personal situation. And most importantly be honest with yourself and the skills you have. At lease in this way, you can improve on the other skills you may lack in the future once you have recognized what skills they are…

a) Hard worker;

b) Independent;

c) Perseverance;

d) Motivation/Motivator;

e) Organizer;

f) Social Skills/Interpersonal Skills;

g) Leadership;

h) Good management;

i) Integrity;

j) Good Health;

k) Common-sense;

l) Support of family;

m) Creativity

n) Ability to accept the unknown and react proactively

There are of course many different variations of the skills and abilities you need to possess in order to operate a successful franchise business. But as I mentioned afore, most of these skills can be self-taught. The main skills you should posses from the outset are: hard working, confident, organizational and motivational. Keep these in mind when you are assessing your capabilities to operate your own business…

Q. 3 What work experience do you bring to the franchise business?

When deciding to invest in a franchise opportunity you should match your work interests and past experiences to your current business investment. This will ensure you find an opportunity you know will sustain your interest and utilize past skills in the future…

Q.4 What education do you bring to the franchise business?

Have you attained an educational qualification in business management, accountancy, finance, retail, internet design etc. If so then your background knowledge of an industry will benefit you when you decide to invest in a franchise or business opportunity. Plus a franchisor will also provide you with the necessary training in the business operation in order for you to be successful.

Q.5 What support networks do you bring to the franchise?

Consider the following examples of possible support networks you may have and ask yourself if each group would support and help you during the start-up and future growth of the franchise. Can any of these suppport groups help you with staffing or financing of the business? It is worth considering the kind of “input” each group could give you when times get tough…

a) useful business contacts from previous job;

b) support of your partner, spouse and other family members;

c) support of friends and close associates;

Q.6 What time commitments do you bring to the business?

This is an important question to ask yourself if you are an active sports man/woman, or you enjoy weekend breaks away or you like to be home by 6pm so you can spend some “quality” time with your family. You should analyze your time commitments according to the following categories:

Social;

Family,

Hobbies,

Other Interests.

Once you have determined what your time commitments are, you can decide if you want to invest in a home-based franchise, part-time or full-time franchise…

Q.7 What financial commitments do you bring to the business?

Remember before any investment in a new business venture you will have financial commitments to analyze and assess before launching a new business. Consider the following categories and write down beside each one what your current payments are:

Household expenses; Loan repayments; Savings; Pension; Holidays; Hobbies; Other Interests.

After you have completed this section, you will have a clear idea of any payments you can “clear” or reduce in order to save up required finance for your new franchise business. Keep in mind! Can any of these payments be reduced?

After you have written down on a separate piece of paper what your skills, experience, financial and familial expectations are, you will have a clear idea of where and what you need to improve on in order to make your franchise investment a good one.

Remember if you do not have all the necessary skills you think are needed to run a successful business, most of these can be self-taught and adapted by you with the support of the franchisor. The strong franchise support and training you will receive from the franchise will undoubtedly aid your success. A franchisor is only as successful as his franchisees…

If you have any questions you would like answered, please leave me a comment and I will get back to you,

Franchise Reporter