This information will allow the franchisee to investigate. The franchisee needs the information to make a correct judgment about becoming a good franchisee. The disclosure document that you have developed has generally been prepared by your attorneys in response to specific disclosure guidelines and has been limited by that disclosure format. This is not saying the attorneys have something they are hiding for you, but rather, they are limited by the directions provided and required by the franchise rule.

The UFOC addresses a very important subject: money. The UFOC will provide detailed information about initial fee requirements and monthly royalty payments including advertising payments and/or lease payments in addition to the regular royalty payment. Be careful because you, the franchisor, may underestimate the initial expenses or these estimates may have become out-of-date. 

Many times the franchisors may show zero working capital which is often unrealistic in a new entrepreneurial venture. Working capital is needed to allow for an adequate financial base and help the owner become self supporting. That is the working figure in item 7 of the UFOC and includes living expenses for the first two to six months. In some cases, the franchisee needs to determine if there is an adequate level of working capital for the entire first year of operation.

A controversy which exists today in franchising is the control which franchisors exercise over the products and supplies used by franchisees. Competitive sourcing is a valuable tool in controlling franchise cost. The franchisor has generally established approved supplier programs and the restrictions or rights which a supplier has. New franchisees may receive money from "approved" suppliers. The UFOC will discuss your supply programs.  

An advantage to the franchisee is the UFOC will provide the franchisee with three years of audited financial statements about the franchisor. However, many prospective franchisees are unable to read an income statement or balance sheet.  These statements could provide the franchisee some interesting and surprising information - including earnings statements.

An area of concern, and some controversy, regards item 20 where franchisors are required to disclose the number of franchisees who are terminated or not renewed during the past three years. Surprisingly, the franchisors are not required nor does the document tell you the number of franchise owners who left for their own reasons or who sold their businesses. Some franchisees may have been "forced out" of their business but this would not show in item 20 because they left for their own personal reasons or sold their businesses through someone else. If you get both sides of the question concerning turnover, you will have a better understanding for how the franchising operation works.