The following is a summary of the data registered franchisors are required to include in their annually updated standard U.F.O.C. (Uniform Franchise Offering Circular).

The franchisor:

About the people who run the franchise

• Job descriptions and qualifications of all directors, the company secretary and executive officer.
• The length of experience in:
  - They type of business offered in the franchise;
  - Operating or offering the franchise;
  - Operating other franchises; and a description of those franchises.
• A detailed resume of their overall business experience.
• About the franchisor's finances:
• A financial statement prepared in accordance with normal accounting standards.

The statement covers the most recent two years of trading and includes:
- Current assets
- Non-current tangible assets
- Non-current intangible assets
- Total assets
- Current liabilities
- Non-current liabilities
- Shareholder's equity
- Operating profit (loss) after tax.

If dealing with a franchisor that is acting in a trust capacity:

• Any liabilities incurred as a trustee
• The amount by which the franchisor has the right to be indemnified out of trust assets.

About the franchisor's history:

• Details concerning the franchisor (and any related entities) or any of its directors / executive officers / principals regarding:
• Any materially relevant debt
• Criminal, civil or administrative proceedings
• Bankruptcies /insolvency's (past or pending)

About the franchising chain:

• The number of existing franchised outlets and company owned outlets associated with the franchisor or its principals.
• A list of existing franchisees (including their addresses and phone numbers and the year they commenced business).  Should a full list be impractical, then a list of all franchisees in the applicable region or metropolitan area should be provided.
• The number of franchises terminated or not renewed, over the past year.
• Details of any current unresolved litigation including those with any existing or former franchises.

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If it all sounds like a battle to obtain information out of reluctant adversaries do not despair. You have an ally in the International Franchise Association (IFA)which imposes a minimum disclosure standard on those franchisors, which have agreed to comply with its Code of Practice.

In the interests of fair dealing, IFA requires its registered franchisors to obtain signed statements from potential franchisees that they have in fact received and read the franchiser's U.F.O.C. (Uniform Franchise Offering Circular) at least 10 days before the signing of a Franchise Agreement.
 
Franchisees must also receive and read:

• A franchising publication approved by the association; and
• A copy of the Code of Practice.

IFA also imposes on its registered franchisors a requirement that a  U.F.O.C. (Uniform Franchise Offering Circular) Franchise Agreement should not be signed until the franchisor has received from the franchisee a statement from an attorney certifying that the attorney has explained the U.F.O.C. /Franchise Agreement to the franchisee. Alternatively, the franchisee is required to sign a statement that the agreement has been explained by an attorney.

After the signing of the  U.F.O.C. (Uniform Franchise Offering Circular) Franchise Agreement, you have a seven-day "cooling off" period during which you may withdraw from the agreement. Withdrawing may incur a financial penalty; this should be clearly stated in the agreement.

There is a possibility that you will be dealing with a franchisor that is not a signatory to IFA's Code of Practice. Awareness of the range of information IFA requires its registered franchisors to disclose will help you in dealing with non-registered franchisers.

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Brushing aside the legal jargon of an agreement, there are several important issues to explore in some depth.

The term of your franchise:
Normally, the franchisor will offer you an option to renew your franchise after an agreed period (commonly five years), subject to your satisfactory performance.  This may sound reasonable but you should insist that the term "satisfactory performance" be defined in simple, non-legalistic language so that you can assess whether the conditions are fair and achievable by you.

This is an issue that warrants careful consideration, for if the franchiso decided to exercise an option not to renew the terms you could find yourself on the losing end of a "forced" sale to a replacement franchisee. Or the agreement may simply lapse and again you could be the loser. You should clarify the terms of any renewal option.

Study the small print carefully; you may find that the renewal is to be offered on the same terms as for new franchisees. As an established franchisee with five years of hard work behind you, you may feel entitled to better terms than that. Plus, in five years time, terms for incoming franchisees may be less favorable than your initial terms.

You should also ensure that the franchise premises is for a period at least equal to the term of the Franchise Agreement.

Your territorial rights:
If the territory is defined in the agreement, you should clarify the precise boundaries of that territory and at the same time determine the franchiser's intentions for the neighboring territory. If the territory has not been assigned, there may be future expansion opportunities for which you can establish an option.  You need to be aware that present or future territories may have an impact on your territory. Check also whether either party has the right to change the territory without approval of the other. You should leave yourself in no doubt that you will have the sole and exclusive right to the territory that is being assigned to you.

Your rights to training:
Since training will be such an important factor in equiping you to build the business, you should satisfy yourself that it is going to be adequate. To be effective, training should cover sales techniques, presentation methods, instructions on how to operate equipment, as well as business operation requirements such as account keeping, recording and paying the various taxes and so on. 

Other important questions are:

• How long will the training take and who pays for the training?
• Will it include your staff, or will you be expected to train them?
• If you have to travel away from home for training, what costs will you incur beyond your franchise fee?
• Will you be paid for the time you spend in training? 
• Will you be trained on new developments? 
• It would be wise to ask other franchisees for their opinion on the quality of the training program.

Opening your franchise:
The agreement should include a provision that the franchisor will "assist" you to set up and open your franchise. But it is in your interest to confirm the details of what assistance will be give. The kind of help you will need includes advertising (and some publicity in your local media) and a special event on opening day to "put you on the map".  Any costs incurred for advertising, etc. are normally paid for by the franchisee.

Assistance from the franchisor usually includes the availability of one of its personnel, without charge, for a number of days during the first month of operation.

Your right to re-sell:
What will your position be if you want to sell the franchise or assign it to another person? 

A question you should ask is:

Will you need the franchisor's consent to sell or assign and will you be obliged to share any profit from the sale?  You  should be wary of conditions that allow the franchisor to charge transfer fees that are so high that they will squeeze your profit margin to an unreasonable level. You may find also that the franchisor requires you to pay part of all the cost of training replacement or new franchisee.  These costs should be stated in the agreement.

Your right to goodwill:
You should not assume that you will be entitled to any payment for goodwill. Unless a provision is written into the agreement specifically entitling you to goodwill, or part of it, you may lose out.  In law it is usually held that the goodwill of a franchise is attached to the trademark, trade name and distinctive presentation which serves to distinguish the franchise chain from competitors. You should not be deterred, however from seeking to have a "goodwill-sharing " clause inserted in the agreement on the basis that your personal efforts will have contributed to any success the franchise outlet achieves under your ownership.

Your right to terminate:
Within the framework of any discussions on your rights to sell, you should also determine how much it would cost you if, for some reason, you were forced to terminate the agreement. You should check that there are provisions in the agreement to ensure that you are treated fairly if poor health or family reasons leave you no alternative but to terminate.

The agreement may give the franchiser the first option to purchase the franchise.  As with your rights to re-sell, you should ensure that you are protected by a valuation system, which includes the equipment.

The franchisor's right to terminate:
The conditions under which the franchisor can terminate the agreement also should be clarified to your satisfaction, particularly if the agreement includes sales quotas.  You will need to decide whether the quotas are attainable.

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A standard U.F.O.C. (Uniform Franchise Offering Circular) Franchise Agreement will cover:

1.  The franchisor's obligation to you as the franchisee; and
2.  Promises, that you, as the franchisee, are required to make to the franchisor.

In a standard agreement, the franchisor's obligations to you as the franchisee are to:

• Provide you with an exclusive arrangement to market a product or service in a particular way in a particular territory.
• Define in detail the goods or services to be provided to you and on what terms they will be provided.
• Provide you with a management system.
• Supply you with other assistance (such as advertising and promotion).
• Specify other services which are to be provided to you, such as group discounts and centralized buying.
• Provide you with training.
• Spell out any specific provisions relating to trademarks and logos.
• In a standard agreement, the franchisor will seek to bind you as the franchisee, to a set of promises that ensure you will:
• Operate the business to your best endeavors.
• Adopt the culture of the franchise.

Protect the franchisor's goodwill by achieving a minimum standard of performance (with the understanding that the franchiser is entitled to terminate the Franchise Agreement if you fail to perform to the standard).

• Follow certain accounting procedures.
• Make available records to the franchiser.
• You should also be aware that the franchisor would seek to:
• Restrict your right to sell, re-assign or abandon the franchise outlet.
• Limit your use or application of confidential material regarding the franchise.
• Restrict your capacity to enter into competition with the franchiser.

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