The Franchise Disclosure Document (FDD) aka the UFOC

Once upon a time, a lot of franchisors did a lot of bad things to people in the 1960s and 1970s. There were no rules and people lost a lot of money buying into concepts that could not deliver or were out and out scams. The Federal Trade Commission (FTC) eventually stepped in and required that all franchisors provide a uniform set of information to potential franchisees. This document was called the Uniform Franchise Offering Circular or UFOC. Recently the UFOC was simplified somewhat and renamed the FDD or Franchise Disclosure Document.

Many people still use the term UFOC and most existing franchisees have never heard the term FDD. I’ll use FDD in this eBook but you may wish to use the term UFOC as you have conversations with franchisors and franchisees. Worse case is that people will inform you that the new term is FDD.

Books on buying a franchise have lengthy chapters about what is in the FDD. You should read this information. Having an idea about how the FDD is structured and what information is there is very useful. However, the key is actually reading the FDD for the franchise you are exploring and having the discipline to focus in on the information that truly affects your decision to buy the franchise.

I evaluated one particular franchise with a very good FDD; it was very readable and the franchisor made no attempt to hide anything. However, in it was a line that said that the franchisor had the right to determine “hours of operation” that a franchisee must have. Almost all early franchisees ran their businesses Monday through Friday and the franchisor actually made this a key selling point to potential franchisees. As more and more franchisees were added, all of the really hot markets for this concept were eventually sold leaving lots of additional viable but not quite as hot markets. To make these viable markets as successful as the initial hot markets, the franchisor decided to mandate that all franchisees open on Saturdays. The existing franchisees were furious. The franchisor was able to point to the FDD as their authority to mandate Saturday operations. 

Every FDD is written to allow the franchisor tremendous latitude in what they do and even after a complete and detailed reading there can still be surprises down the road.  I would concentrate on using the FDD as a means of ensuring that what a franchise salesman is telling you is consistent with what they are saying to the FTC. If you begin hearing a lot of information that is not part of the FDD, you might suspect that the salesman is either making it up as they go along or there’s something a bit (at best) disingenuous about the franchisor.

I encountered one franchisor that would not give me a copy of their FDD until I visited their corporate offices. I did not take them up on their offer. For me, this is a huge red flag and I feel it was likely that there were things in the FDD that they didn’t want me to see without having me present so they could sell around them. I may have been wrong in this case but I would suggest that if the franchisor makes it too difficult for you to get their FDD, I would be very concerned.