WASHINGTON-Some of franchising's worst gobbledygook could clear up Jan. 1. Starting next year, Federal Trade Commission guidelines will require franchisors to speak in ``plain English'' and divulge additional information to prospective franchise buyers in their Uniform Franchise Offering Circulars (UFOC). Firms failing to follow the guidelines will not be allowed to open new franchises in the 35 states under FTC jurisdiction.
Some franchisors have voluntarily begun using the revised guidelines, which become mandatory Jan. 1.
The new guidelines eventually will improve business for both franchisees and franchisors across the country, according to Matthew Shay, vice president and chief counsel of the International Franchise Association (IFA).
UFOCs, once a myriad of legalese for potential franchisees, have to be reworded to improve clarity and amended to include ``vital pre-purchase information crucial to (an investor's) decisionmaking'' under the new guidelines, the IFA said. That means new franchisees will be more informed, Mr. Shay noted.
``I think franchisors recognized the benefit (of the new form) because the more informed investor is more likely to be a happy investor, and a happy investor is more likely to be a successful investor.''
Easier guidelines could improve franchise quality and encourage more entrepreneurs to invest, he added.
Burnsville, Minn.-based Tires Plus Groupe Inc., which operates 24 franchises in Minnesota, Wisconsin, Iowa, North Dakota and South Dakota, has been using the new FTC guidelines most of this year.
And the changes have helped the company relate to its potential franchise owners, according to John Hyduke, Tires Plus vice president of franchising.
``For us, it was not a major change. It was just a change in format,'' Mr. Hyduke said. ``It makes it easier during the sale process for us to use (the UFOC) as a reference guide.''
Dropping the legalese and disclosing information in layman's terms with charts and graphs helps the company explain the benefits of owning a Tires Plus franchise, he explained.
Among the changes, franchisors will have to replace the phrase ``prior to'' with the word ``before'' in their disclosure document.
Goodyear's attorneys currently are in the process of rewording their documents, according to a spokesman who said the company ``is in compliance with FTC guidelines, and obviously we'll continue to do so.''
The new guidelines amend sections of UFOCs to require franchisors to disclose their relationships with suppliers and their system for franchise devel opment, the IFA's Mr. Shay pointed out.
Development plans using ``alternative'' methods of distribution recently have become a hot topic in the franchise world. Within the tire industry, separate groups of Goodyear franchisees in California and Texas filed suits this year against their supplier claiming the company lessened the value of their dealerships when it decided to sell tires through mass merchandisers and warehouse clubs.
But one of the most important disclosures, Mr. Shay said, is the number of franchised or company-owned outlets that were sold, opened or closed in the past three years along with the names, addresses and telephone numbers of franchisees who left the system within the past 12 months.
``What's required now goes to great length to protect the (potential) investors,'' Mr. Shay said.