updated - January 20, 2021 Wednesday EST
Starting a business is by no means an easy task. It involves a lot of hard work, mountains of paperwork, a tiny little bit of luck and yet none of this actually guarantees success. This is one of the main reasons why most entrepreneurs end up siding with a franchise, instead of starting their own business from scratch.
Not only does a franchise offer an already proven business model at your disposal, but also the licence to employ that specific brand name, it's marketing schemes and practices, as well as any other aspect of a fully developed company to build your almost "independent" business. But what is franchising, how do you register your franchise and what is the best part of the US to do that?
Franchising is nothing more than a business model which allows single and multi-unit expansion and growth. Franchising your business means creating legal and operational documents and disclosures needed to comply with state-dependent franchising laws and sell your franchise to franchisees. They will, in turn, open their business under your franchise in different locations around the US and grow your business.
Franchise laws are made up of different federal and state laws used to regulate offer, registration and sale of different franchises, as well as establish a legal relationship between your franchise and potential franchisees. The FFS or Federal Franchise Rule is a federal law governing franchise-related transactions in all 50 states. It is enforced by the FTC or Federal Trade Commission using a document called FDD or Federal Disclosure document.
FDD is a legal document required to sell franchises. Franchises are required to provide an FDD to franchisees two weeks before signing any legal agreements or accepting payments for their franchise. FDD needs to be updated on an annual level.
Although franchising is technically regulated on a federal level, only a number of US states handle the actual franchising registration process. Some states require you to register your FDD before your offer or sell your franchise to a franchisee, while others only require you to file a franchising application with the state in question. Franchise registration states include:
Filing states include:
Despite all the legal work, franchise registration is actually quite a straight-forward process. Let's take Texas for an example; Texas LLC and franchise registrations are both pretty much the same, legally speaking. You need to prepare your FDD and the best way to do this is to make sure your legal team prepares it as a multi-state FDD which works in all US states and allows you to sell both single-unit franchises and multi-unit development franchises. You also need to:
Create and provide an operations manual
Register all the necessary trademarks
Establish your new franchising entity
Register your FDD in the franchise registering states
Create a franchise-specific sales strategy, and lastly
Set a realistic budget
Franchising usually takes between 90 and 120 days to be finalized. That, of course, depends on factors that are unique to your own particular franchise, as well as its location. Once it is fully registered, it's time to start planning your franchise marketing and sales. Set realistic goals and consider your franchise's value proposition. What makes your franchise unique and what can your franchise actually accomplish for the potential franchisees.
Some franchises go national as soon as they open, so to speak. But this is mostly reserved for well-developed organizations. The multi-state FDD approach may cover all of the 50 states, but it does come with a cost, namely annual fees for each state.
Expanding your franchise to a specific state requires a lot of consideration and that's without factoring in the filling out forms, updating your FDD, maintaining different registrations and other legal requirements needed to operate legally in that particular state.
The best course of action is to cover every little detail with your legal representative or legal team before going head-first into financial ruin. Be smart, be patient, way out your options and consider which franchises best suit which states.
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