Franchise FAQs

How do I know that I will be able to sell franchises?

You don’t. Selling franchises requires a different set of skills and a business that meets the test of franchisability. While there are no guarantees, industry surveys have indicated that on average a new franchisor will sell between six and nine franchises in its first year of franchising. And some have grown much faster.

Can I avoid franchise laws?

There are some technicalities that you can use, depending on your situation. For example, FTC Rule 436 has an exception for companies who charge total fees of less than $500 in the first six months of operation. But if you have the three definitional elements of a franchise, it is generally best not to try, as fines in some instances have run in the millions of dollars. Moreover, in addition to the federal law governing franchise sales, 23 states have separate regulations on the subject.

What do the franchise laws require?

Generally, FTC Rule 436 requires that you provide prospective franchisees with a prescribed disclosure document when the franchisee reasonably requests it. State laws require that you register or file those documents with specific agencies. You are not allowed to sign a franchise agreement or take money from a prospective franchisee until the expiration of required waiting periods.

What happens if I sell a franchise without developing the necessary documents?

The fines and penalties can be significant. A franchisor can have significant liability under FTC Rule 436 not to mention actions by the state agencies.

What if I only want to sell one or two franchises? Do I still need to go through all the time and expense?

Depending on your situation, no. All you technically need are the appropriate legal documents and registrations (depending on your state). This may be accomplished for relatively little in the way of expense — perhaps as little as $15,000.