What is Required to Franchise a Business

June 2, 2015 by Dave

There really is a ton of information floating around out there about franchising your business. Some information is misleading, confusing and focuses more on selling franchises than actual substance about franchising. Other information you find may only give partial facts. We would like to help answer the most common questions about franchising. So have you ever wondered what are the requirements to franchise a business? Allow us to answer this and some common questions about franchising for you right now!

Is Your Business Required to Make a Certain Amount of Revenue?

Nope! There is no set amount of revenue that your business is required to make in order to franchise and you are not required to disclose the amount of revenue your current business is making (see “How Much Do I Need to Make Before I Franchise My Business?“). There is no pre-determined level you must hit as different types of businesses will have different revenue levels. Furthermore, there is no standard or scale that any governmental agency has put in place to qualify your business from a revenue standpoint for franchising.

Do You Need More Than One Location to Franchise?

Not at all. Technically speaking you do not need to have any business in operation to franchise, however we strongly encourage that you have at least one business in operation for proof of concept (take a look at “Do I Need Multiple Locations Before Franchising“). It also does not matter whether or not your business is mobile, homebased or at an actual brick-and-mortar location. It is also important to note that most franchised businesses started out with just one company-owned location when they went to franchise.

Is There an Average Profit Your Business Should Be Making Before Franchising?

No there is not. As you know profit is a moving target that is contingent upon how well a person operates their business. You are not required to show the profit that your current business is making. It is encouraged that profit is not discussed at all as that could be construed as a promise or guarantee as to how much your potential franchisee can expect to make if they buy your franchise (learn more about problems with franchise sales misrepresentations).

Who Regulates Franchising?

Franchising is regulated by the Federal Trade Commission (FTC) in an effort to prevent fraud in the industry (visit our frequently asked questions about franchising to learn more about how franchising is regulated). Franchising falls under securities law and many rules have been put in place in an effort to prevent misrepresentation in the marketplace and to protect the consumer (in this case the person buying a franchise).

What Are the Requirements to Sell Franchises?

Regardless of what state you currently operate your business within you cannot offer, discuss or sell a franchise without having a Franchise Disclosure Document (FDD) prepared and approved. The FDD is a package that outlines your responsibility and obligations to a franchisee along with their responsibilities and obligations in operating your business (read about the elements of a Franchise Disclosure Document). This document is required to follow the FTC guidelines and in some cases must be approved with your home state (see a list of franchise registration states).

You have questions about franchising your business, we have straight-forward answers, no fluff. Please don’t hesitate to call us directly at 1-877-615-5177 or simply contact us and we will be more than happy to clear up any confusion, bust any myths, answer any questions about the requirements to franchise and even determine if franchising is right for you!