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.
The Franchise Maker has helped business owners evaluate franchise readiness for decades across a wide range of industries. We believe business owners deserve straight-forward answers about franchising without hype or fluff. So if you have ever wondered what the actual requirements are to franchise a business, let’s break down some of the most common questions.
Quick Answer: What is Required to Franchise a Business?
In most cases, a business should have:
- A proven business model
- Processes that can be replicated
- Trademark protection for the brand
- A Franchise Disclosure Document (known as an FDD)
- A business model that can realistically be duplicated by others (franchisees)
Contrary to popular belief, there is no government-required revenue threshold, minimum number of locations, or set profit level required before franchising a business.
However, just because a business can franchise does not necessarily mean it is fully ready to franchise. In other words, a successful independent business is not always automatically franchise-ready.
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?“).
Different industries naturally operate at different revenue levels, so there is no universal financial benchmark established by any governmental agency for franchising eligibility.
That said, it is important that your business model is sustainable and can work in different markets.
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“).
Many nationally recognized franchise systems originally began with just one company-owned location before expanding through franchising.
It also does not matter whether or not your business is:
- mobile
- home-based
- or at an actual brick-and-mortar location.
Is There an Average Profit Your Business Should Be Making Before Franchising?
No.
Profitability varies dramatically depending on:
- industry
- operating expenses
- management style
- staffing
- location
There is no official profit threshold required before franchising a business.
It is also important to understand that discussing earnings improperly during franchise sales conversations can create legal issues. Making promises or guarantees about future earnings may be considered a franchise sales misrepresentation (learn more about problems with franchise sales misrepresentations).
Who Regulates Franchising?
Franchising is regulated by the Federal Trade Commission (FTC) in an effort to help prevent fraud and misrepresentation within the franchise industry.
Certain states also have additional franchise registration and filing requirements.
Franchise laws are designed to protect prospective franchise buyers by requiring franchisors to provide specific disclosures before offering or selling franchises.
(See: “Frequently Asked Questions About Franchising“ to learn more about how franchising is regulated)
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 outlines:
- the franchisor’s obligations
- the franchisee’s obligations
- fees and costs
- operational expectations
- protections for trade secrets and intellectual property
- and most importantly legal disclosures
This document is required to follow the FTC franchise regulations and depending on the state, may also require registration and approval before franchises can offered and sales can begin (see a list of franchise registration states).
(To learn more about the FDD see: “Elements of a Franchise Disclosure Document“).
What Most Business Owners Forget to Ask Before Franchising
Many business owners focus only on whether their business is profitable enough to franchise. In reality, successful franchising often depends more on operational consistency and replicability than raw revenue alone.
Questions Many Business Owners Overlook
- Can your systems be taught to someone else?
- Is the business overly dependent on an owner?
- Can results be duplicated across different markets?
- Is the business operationally organized?
- Can someone (a franchisee) realistically follow the model successfully?
These are often factors that determine long-term franchise success .
Can Any Business Become a Franchise?
Not every business is a strong franchise candidate.
Businesses that franchise successfully typically have:
- repeatable systems
- strong branding
- operational consistency
- market demand
- and a model that can realistically be duplicated by others
This is why franchise feasibility should always be evaluated before moving forward with franchise development.
Final Thoughts About Franchising Requirements
There are many misconceptions surrounding the requirements to franchise a business (take a look at “Why Franchise Systems Fail“). In reality, franchising is not determined by arbitrary revenue numbers or by having dozens of locations already operating.
The most important factors are whether your business model is:
- proven
- teachable
- scalable
- and capable of being duplicated successfully by others (franchisees)
You have questions about franchising your business, we have straight-forward answers, no fluff. While there are many benefits of franchising as you can see there are many things to take into consideration before jumping right into it.
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 the right growth strategy for you!
- When Starting a Franchise Things to Consider
- Can Any Business be Franchised
- Why Franchise Systems Fail
- You Need More than Documents to Franchise Your Business
- Can a Business be Franchised if it Requires a License
- The Steps to Franchise
- Franchising a Restaurant
