Tag: Franchise

The Uniform Franchise Offering Circular: Just How Important is the UFOC?

Post author By Ethan Theo
Post date February 14, 2008

I started playing golf about 10 years ago and over time have come to love the game. Although technique is a large part of what drives many golfers back to the greens, golf also has a very specific set of rules that define the game and create an equal playing field. The rules spell out how to play, how to keep score and how to determine a winner.
Franchising, too, has a set of rules, and these rules are manifested in a document called the Uniform Franchise Offering Circular (UFOC). Each prospective franchisee of every franchise company in the U.S. will receive this document as a requirement of the Federal Trade Commission. Effective since 1979, the stated purpose of the FTC rule is:
“The Rule is designed to enable potential franchisees to protect themselves before investing by providing them with information essential to an assessment of the potential risks and benefits, to make meaningful comparisons with other investments, and to further investigation of the franchise opportunity.”
In other words, the UFOC should provide you with enough information to be able to make an informed decision about purchasing the franchise. The UFOC serves as a protection for the individual against making a decision based on information not supported by fact and should be read carefully by each and every woman looking at buying a franchise as it contains such “need to know” items as the costs and fees involved, any litigation history of the franchisor and much more.
The FTC Rule requires franchisors to provide the UFOC to the prospective franchisee at the earlier of the first personal meeting or 10 business days before the franchisee signs an agreement or pays any money. (The UFOC will probably contain a receipt for you to sign and date, to show they have complied with this rule.) It also provides that the franchise agreement must be given to the prospective franchisee at least five business days before the franchisee signs any agreement or pays any money. A franchisor’s UFOC must be updated on an annual basis, or sooner if certain conditions are met.
Here are some of the items a UFOC must contain:
• History and Experience. The franchisor must provide you with a history of their past activities, especially as it may relate to potentially negative information. This information must be provided not only for the company itself as well as for its predecessors and affiliates but also for the officers and directors. The information includes factors like the business experience of the company and its principles and any fairly recent litigation or bankruptcy history for either.
• Financial Factors. The company must disclose to you the relevant financial terms of the franchise opportunity. This would include the initial franchise fees, other startup costs, and an investment range estimate for your total cost to get into the business. The UFOC must also disclose any other fees, such as the royalty, marketing and renewal fees that the franchisee will have to pay throughout the life of their franchise.
• Obligations and Restrictions. The company must disclose the obligations of both you and the company under the terms of the franchise agreement. They must also spell out any mandated restrictions that you will operate under in terms of your purchasing options and behavior as a franchisee. This may include such items as site selection and development, training, trademarks, customer service, advertising, personnel, territory, reporting and dispute resolution.
• Earnings Claims. FTC rules leave it up to the franchisor whether they want to supply information about the earnings that can be achieved in their business. If a franchisor does want to provide earnings claims, they must follow stringent rules on how this information can be given to a prospective franchisee. It is essential for the franchisor to make sure that the data provided is as accurate and representative as possible and they must also clearly label any assumptions or qualifications on the data provided. As a result, earnings claims can take a variety of angles and approaches, so reviewing the background information is vital.
• Exhibits. The company must also provide other data including audited financial statements, current franchisee lists with contact information, contracts and receipts. Item XX, information regarding franchisees of the company, is particularly important to you as you will be calling a number of these franchisees to learn about the business from the franchisee point of view. Item XXII contains the Franchise Agreement, which you will want to review with your franchise attorney before signing.
Individual State Requirements
In addition to the laws that mandate disclosure, there are also some states that have passed specific laws to further protect franchisees in that state. These laws may add additional disclosures or rules about franchise agreement terms. As an example of this, there are a number of states that require that the legal venue for any dispute must be in their state rather than in the state where the franchise company is located. These types of additional requirements vary from state to state but any that are appropriate to your situation in your state should be disclosed in the UFOC you receive.
Your responsibility
The most important point to remember regarding the UFOC is that you need to read and understand the material that the franchisor is disclosing to you. The FTC has a requirement that these documents must be presented in understandable English so that the material should be clear. It won’t make any difference, however, if you don’t carefully review the material. After you have read the document, you may want to have your attorney go through the paperwork as well.
Make sure you take the time to study the information supplied to you and you’ll have a much better chance of making sure that these legal requirements actually serve their purpose of protecting or safeguarding your interests. Just as a good SCRABBLE® player knows the 16 words that use a Q but don’t need the U, and that playing a 7-letter word like “qindars” will gain her 50 bonus points, those who read and understand the rules of the UFOC are also likely to be ahead in the game.

Kim Ellis is the President of Bison.com, a leading online resource for franchise and business opportunities. She has been quoted as an industry expert in USA Today, Wall Street Journal and a variety of local and regional publications regarding trends in business and franchising. Kim combines her entrepreneurial spirit with a diverse background in marketing and operation to help others succeed in franchising.

Tags business, Franchise, Kim Ellis, UFOC, Uniform franchise offering circular

Franchise

Create a Winning Business Plan…

Post author By Ethan Theo
Post date February 9, 2008

“A franchise is more likely to succeed with a projected plan for all eventualities: If you fail to plan, you plan to fail…”

The old adage “If you fail to plan, you plan to fail” is especially important for first time franchisees. Those who understand the benefits of business planning are more likely to be successful and pro-active to management decisions, than are those who react to day-to-day operational issues. Franchisees who fail to plan strategically end up confronting problems head on and may be unable to manage the business effectively on a daily basis.
This type of business management can have a negative impact on the franchise, staff and other individuals involved in the operation. It can also leave very little time for any other business management concerns. Therefore it is necessary for franchisees to construct an effective business plan for their franchise system.
Your business plan will be the “sales document” for you and your business and its preparation should project the image of what you want for your business.
The following is a useful guideline on how best to approach drawing up a business plan and the key terms it should contain.
1. Introduction
• Purpose of the business and business concept;
• Overall business objectives;
• Legal status of the business stated; benefits and shortcomings of this business system.
2. The Product and Service
• Product or service your business will offer; include relevant history of the franchise product
or service;
• List the Unique Selling Point (USP) of your business product or service; the key feature
that makes your product stand out from the rest in the market place;
• How the product or service can be developed with the help of the franchisor.
3. The Personnel
• Include details of anyone who will be involved in making your business a success. These
people are a very important asset to your business success. Include in this section:
• Brief summary of each person’s skills and knowledge of the particular sector, including
their personal assessment of attributes, strengths, weaknesses as well as your own
assessment of each person;
• Relevant experience, commitment and reasons for involvement;
• Don’t forget to include yourself in this assessment of key personnel- you are the driving
force behind the business operation.
• Include a detailed CV for each person in the “Appendix” at the end of your plan.
4. The Market
• This is probably the most important section of the business plan. Without a clearly defined
market, your business will not succeed. If you can show that you have “done your
homework”, you will gain credibility for the whole business plan. Your franchisor will also
have research in this area you can avail of.
• Describe the current conditions in the market place for your product or service;
• Detail any relevant facts and figures relating to the market sector(s) that you will be
targeting, and the type(s) of potential customers for your product or service.
• Details of competitors should be included with reasons why potential customers will
choose your product/service over your competitors.
5. The Marketing Plan
• Include your marketing objectives; i.e. number of sales.
• Where your product or service will be positioned within the market place in terms of
image, price and quality. You can avail of franchisor assistance in determining the
marketing strategy.
• Planned marketing, PR campaigns and advertising;
• Customer service policy is planned and how it will work.
6. The Operation
• Include sources of supply, labor and materials;
• Detail resources required to operate your business; what you already have and what you
will need to acquire;
• Identify any crucial procedures or sensitive issues and outline possible solutions;
• State where you intend to operate from- your current premises and future requirements;
• Outline your projected Health and Safety policies.
7. The Premises
• Location;
• Future business growth;
• Running costs and Uniform Business Rates, rent, etc.
• Insurance
• Planning Consent, planning issues.
8. Financial Information
(a) Introduction: Start with the key facts; the forecast profit (or loss) for the year;
• Whether additional financing will be required and what for;
• Break even sales for the business should be calculated and shown as a % of your
anticipated sales;
• Details of the money you need to take out of the business to live on – required income.
(b) Profit and Loss Forecast
Your forecast profit (or loss) should be based on your anticipated sales, minus your direct costs and overheads. The assumptions made should include:
• Justify anticipated sales as best you can;
• Any direct costs (materials, etc) should be detailed;
• Don’t’ forget overheads;
(c) Cash Flow Forecast
To anticipate how much cash your business will require, you should convert your profit and loss forecast. List the following assumptions:
• When will you get the money from sales;
• When you will have to pay suppliers;
• The timing of specific overheads;
• How much capital equipment that you require for the business. Differentiate between
existing equipment and expenditure still to be made- how much and when.

9. The Appendix
This is the final section of the BP. It should include the detailed information mentioned earlier and the following:
• Details of premises;
• Insurance Details;
• Product brochure, photographs, letterhead.
• Anything else that you believe will enhance the credibility of you or enhance the credibility
of your business.
If you use these guidelines as your point of reference to guide you through creating your own business plan, you should have no problem in writing a successful Business Plan for your own personal use, or for approaching investors for your business, financial institutions and a franchisor.

Aine Meade is a Website Editor for Franchise Direct, a leading Internet franchise advertising portal. Aine creates high quality franchise information for its international websites in the U.S., and Europe. Aine has a BA (First) in English and History; MA in Literature & Publishing; Diploma in Media Journalism and a Diploma in Marketing.

Tags business plan, business start-up, Franchise

Franchise

Taking it Step by Step: What to do before you begin searching for a franchise

Post author By Ethan Theo
Post date February 7, 2008
1 Comment on Taking it Step by Step: What to do before you begin searching for a franchise

The lure of franchise ownership can be a heady experience. You imagine the thrill of being your own boss, creating wealth for yourself instead of someone else. But you don’t want to enter the search process unprepared, susceptible to mistakes.
You have so many questions: Will you be happy as a franchisee? Can you make the money you need to provide for yourself and your future? Where do you even start, with thousands of franchise opportunities available?
Before you even begin looking at franchises, you need to do an introspective self-evaluation of your own strengths and challenges. Sit down, get out paper and pen, and as objectively as possible answer these questions:
SKILLS / STRENGTHS
• What part of your current and past jobs have you liked doing the most?
• List your skills and evaluate how well you perform each.
• Describe the work environment that most appeals to you.
• Are you an animal lover? Auto buff? Artistic? What skills/hobbies do you have that may be applicable to a franchise business?
• Are you status conscious? Does it matter to you what the product or service of the franchise is or does the business potential matter more?
CHALLENGES
• What part of your current and past jobs have you liked doing the least?
• List your weakness, those things you’d not want to do or would want to hire someone to do in a business.
MANAGEMENT SKILLS
• Do you have experience managing employees? Did you enjoy it?
• Are you comfortable with recruiting employees?
• Do you have the experience and skill needed to create a work environment that will allow you to retain employees?
FINANCIAL CONSIDERATIONS• How much capital do you have to invest?
• Can you afford to do without a regular income during the start up phase of your new business?
• What are your financial goals?
• How do you see your lifestyle changing as a result of meeting your financial goals?
• How do you feel about taking the risk of becoming self-employed?
ARE YOU A TEAM PLAYER?
• Franchising is all about following someone else’s system. Can you picture yourself in this role, executing a system you didn’t create?
Once you have answered these questions, you’ll begin to see a clearer picture of what talents you can bring to a franchise business and what you expect to receive in return. The next step is to start looking at opportunities and evaluating them based on your answers. It may take some effort to find the right franchise so don’t compromise.
Franchise opportunities come in many shapes and sizes and you never need to settle for one that is just not a great fit. There are businesses you can run yourself from your home and others that call for multiple unit locations in upscale malls with numerous employees.
Choosing the franchise opportunity that best matches your needs, interests and style is your greatest assurance of happiness and success.

Tags Bison, business, Franchise, Kim Ellis, opportunity

Franchise

6 Key Clauses Obligatory in a Franchise Agreement

Post author By Ethan Theo
Post date February 4, 2008

In the early days of franchising, the relationship between franchisors and franchisees was a lot less complicated and less sophisticated, and the franchise agreement was a lot less vague than it is now. Today many franchisors limit what they offer to franchisees within the franchise agreement. The reason for this lack of specific clauses is because franchisors fear franchisees will demand more from their franchise agreement if more clauses are added in the agreement at the begining of negotiations.
So what does this mean for potential franchisees and what general clauses should they expect to be positioned within the franchise agreement?
1. Training
It is essential in franchising, that franchisors must provide training for new franchisees in how to operate the franchised business. This obligation to train must continue beyond initial training, so that franchisors are obliged to provide continuing and further support to franchisees during the continuation of the franchise agreement. This must be stated in the franchise agreement from the beginning…
2. Protection
Franchisees pay franchisors for the right to use the franchisor’s intellectual property such as the trade name, trade marks, know-how, copyright, business system and so on. A balance has to be struck between what is necessary, desirable or practicable for the interests of the franchisor, the franchisee and the franchised network as a whole.
Franchise agreements should contain provisions relating to branding/trademarks and its portection (for example, taking court proceedings against infringers of franchisor’s intellectual property) so that prospective franchisees can make a decision, as to whether such provisions are acceptable to them or not.
3. Support
Crucial to any successful franchised operation is the level of support a franchisor gives to its franchisees in its operation of its franchised business. This after all is one of the things franchisees pay for.
Therefore there should be a positive obligation on the part of the franchisor to provide such support as a franchisee may require from start to finish. The level of support however, will vary from one franchisor to another. The best advice here is to state clearly what support is offered by the franchisor, and if there is a possibility of continual support.
4. Improvements
One of the fundamentals to any franchisor/franchisee relationship agreement is the on-going improvement of services, products and the business system itself which is implemented from the start of the franchise agreement.
One of the principal obligations of franchisees is to sell goods or services which are the subject of the franchise, not to develop them. It is up to the franchisor to think of improvements for the business and to implement these changes with the help and assistance of the franchisee. At the beginning of the franchise business, improvements to the business system must come from the franchisor.
5. Quality Control
Different franchisors have different methods of ensuring that quality is maintained throughout their franchised network. Before franchisors can do this they must be sure of the quality of their own system, products, services, staffing and so on. This is best achieved by demonstration, and these days very few if any franchisees will buy a franchise without having first proven the business system works effectively.
Having established a high quality business system, the franchisor must also state in the franchise agreement, that all franchisees must meet the standards of quality put in place. This ensures that high standards of quality are met and the business system can run more smoothly.
6. Advertising marketing and promotions
This is the last obligation, and one in which not everyone will agree to. Some feel that the obligation to provide advertising marketing and promotions of the franchise, at least at the national level, should be that of the franchisor.
Much depends on the nature of the business. In some cases franchisors are content to leave it to the franchisees and feel that their franchised business would benefit little, by any form of national advertising.
Other franchise systems are increasingly reliant on national advertising and marketing campaigns, and promote such campaigns in a consistent way that involves the entire franchise network.
In essence, PR and Marketing is generally regarded as a beneficial campaign for the effective promotion of the business system, and most franchisors will obligingly manage campaigns on behalf of the franchisees.
In other cases, the franchisor may enable localized campaigns to be conducted and managed by the franchisees themselves. Once again, this obligation on the part of the franchisor will be mentioned within the franchise agreement.

There are many more “obligations” by which a franchisor should help a franchisee operate a franchise system successfully. It is up to the franchisee to study carefully the clauses within the franchise agreement to understand fully the consequences involved within running a franchise business before signing on the dotted line…
If you have any more obligations a potential franchisee should be made aware of it, please feel free to leave a comment.

Tags Franchise, franchise agreement, franchise opportunities, franchisee, franchisor

Franchise

Do You Follow Marked Trails or Bushwhack Through the Bush?

Post author By Ethan Theo
Post date January 29, 2008
1 Comment on Do You Follow Marked Trails or Bushwhack Through the Bush?

If you’ve ever dreamed of owning your own business, you’re not alone. The desire for the autonomy and financial security that being your own boss can provide has never been more prevalent than it is today. There are many reasons for this but a main one would have to be that as big business gets bigger, the value of the individual employee is diminished and people are fed up with being disposable. Owning a business is a great way for a woman to take charge of her future.
One way to become a business owner is through franchising and the franchise industry is at an all-time high. There are more franchised businesses than you can possibly imagine. A recent survey found almost 500 concepts in fast food alone, a category that represents only 20% of U.S. franchises. The IFA Educational Foundation’s Economic Impact of Franchised Businesses study indicates there were three quarters of a million franchised businesses in 2001.*
There are other ways to become a business owner, include buying a business opportunity and creating a business from the ground up. There are definite advantages and some disadvantages to owing a franchise business over these other business ownership options and the franchise model is not right for everyone.
To see if franchising could be right for you, compare your previous business experience, your motivations and your current situation to the following examples.
Franchise Ownership
Let’s imagine that you are in your early 40s and have worked for a half a dozen large companies over the last 20 years. You’ve been recently laid off but even before the layoff, you realized you desperately wanted to change careers and find something that would allow you to use a larger skill-set and provide a greater income. Your company has given you a cash settlement and you are keen to take charge of your life, become your own boss and try something different. You want a good income and are willing to put in whatever hours necessary to jump start the new career but your overall goal is to eventually work reasonable hours and have more time for yourself and your family.
If your history is similar, you are probably an excellent candidate for franchise ownership. This path will allow you to benefit from a proven system of operations and a training program that will quickly get you up and running. As you have no previous business ownership experience, the ongoing support you will receive from a franchisor will be vital to your success. Many franchise opportunities offer a turnkey package that will include almost everything you need to start your business. In addition, most franchisors require no previous experience in their industry so you can be open to a variety of types of businesses and won’t need to stick to the one industry you know.
Another advantage to franchising is that franchisees can take advantage of lower cost materials due to group buying power. They also learn from each other and usually form a peer support system. Because you won’t be occupied with every minute detail of owning a business, you will be able to concentrate on growing your business.
Franchisors learn from their franchisees and use this information to continually improve their systems. Data from other franchisees can be used to help you predict your break even timeframe and franchisors are required to provide you with a UFOC (Uniform Franchise Offering Circular), which will help you learn about the company, the officers, the current franchisees, and any litigation against the company.
Franchising is a business model that works very well for those who have previously been in middle or upper management – particularly women as they are historically more likely to comply with a franchisor’s rules. Women, many franchisors report, are also quicker to see the value of using a proven system and less likely to waste time trying to fix something that’s not broken.
Compliance with a franchisor’s rules can also been seen as a disadvantage to franchise ownership. A franchise lets you be in charge as long as you follow and adhere to all of the elements of the franchise system. This is necessary so that the franchisor can offer consistency across the brand – and let’s face it, they’ve done the research and tested the procedures so their way is usually the right way. This is also a benefit to the consumer who can expect comparable quality products or services no matter which franchisee he patronizes, anywhere across the country or around the world.
Another perceived disadvantage is that a franchisee must pay royalties and sometimes a marketing fee to the franchisor. Royalty payments are compensation for everything the franchisor provides, including access to the brand, the operating system and related items. The franchisor uses the marketing fee to provide national advertising to build the brand and drive market penetration at a greater level than a franchisee could do on her own. Also, national marketing funds enable franchisees to benefit from professionally produced marketing materials and realize efficiencies from commingled funds.
If your are comfortable learning from others who have experienced success and would rather follow a proven trail than bushwhack your way through the jungle, buying a franchise could help you achieve your personal and financial dreams. However, if you’re the type of woman who likes to run with scissors and would never stop to ask directions, there may be better options for you. Read on!
Buying a Business Opportunity
As another example, let say that a varied work history has given you some great skills which you wish to put to use running your own business. You are not concerned about the type of business you buy but want to have freedom to run it your way. You would be okay with a certain degree of risk but also recognize the advantages of an established system of operations.
A business opportunity is a business you buy outright and have the freedom to run any way you choose. The benefit of a business opportunity is that they generally provide you with a successful business model and possibly some training and marketing assistance. The initial investment is usually lower than for a franchise and there are no ongoing royalty payments.
A downside to a business opportunity is that the seller isn’t as invested in your success or failure as is a franchisor because they make their money up front. Therefore, you won’t have extensive ongoing training, assistance, a national marketing program, research and development, etc. The risk factor is probably greater than for owning a franchise but could be less than starting your own business.
Starting Your Own Business
In this third scenario let’s assume that you have a steady, predictable income, perhaps from a working spouse or other source. You think of yourself as a truly entrepreneurial woman and you are brimming with ideas for new products or services and love to “tinker” with things until they are just as you want them. You are strongly attracted to the idea of being your own boss and don’t like to answer to others. You’ve previously been a business owner and have enjoyed the experience. You have the drive to follow through on your plans and have a background in a variety of disciplines, including sales, marketing, accounting and management, so you are not looking for outside support. In addition, you have plenty of money to spend on researching and developing your product/service so a predictable timeframe for break even isn’t a concern.
If you are like this type of person, one who likes blazing her own trails, franchise ownership is not for you. Instead you will be more comfortable setting up your own business using your own ideas. This is the most risky way to become your own boss because you will not have the proven operations system, nationwide brand and marketing, and the ongoing support of a franchise company. You may also have more difficulty obtaining business loans and the time from inception to when you start turning a profit will be hard to predict. On the plus side, you will owe no royalties and can run you business just as you please.
Historically this is the model least likely to succeed on average so it is recommended only for truly exceptional individuals who have the desire and stamina to start their own business based on their own unique idea or approach.
The chart below will help you compare the advantages and disadvantages of these three types of business ownership opportunities. For a majority of people, franchising has proven to be a viable way to become a business owner. For the most part it offers the lowest risks and the highest level of support. Because a franchisor doesn’t succeed until the franchisees do, you’ll find a team of dedicated professionals willing and able to help you every step of the way, from site selection to employee hiring to grand opening. They will keep in touch with you from the very beginning to years down the road and have web sites, toll free numbers and dedicated staff to make sure all your questions are answered quickly.
But it takes the right sort of person to be a happy and successful franchisee. Before you become too involved in the process of finding a business to buy, carefully consider which type of opportunity will be right for you. It can make all the difference between the success and failure of your new venture.
Business Ownership Comparisons

* IFA Educational Foundation-FRANdata study released August 2006

Tags business, Franchise, Kim Ellis, opportunity