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Thinking of opening a franchise? Smart choice.
Starting a franchise is far easier than starting a business from scratch. One reason for this is that you have a proven business model backing you. Another reason is that you will have so much guidance when it comes to which business licenses your franchise needs.
The first step to building your new business is to obtain your franchise license.
Franchising vs. Licensing
When you buy a franchise, you automatically get a license to use the brand and operating methods of the business. This is the big benefit of having a franchise -- a license to use the marketing materials, brand name, business model and other aspects of the company to build your own independently owned business.
The franchise license is different than other types of licensed businesses. With a franchise, you’re given the freedom to duplicate the business in your location. This license comes with stipulations that you will manage and operate the business under the franchisee’s rules.
If you license a business, you get the ability to sell a company’s products in your store. You can buy the license to sell a franchise’s products, but that will not grant you the rights to open the franchise itself. For example, the Disney Corporation sells franchises of The Disney Store, and it also sells the license to sell Disney products.
Are There Regulations For the Franchisor?
Franchisors have their own set of regulations with the federal and state governments.
Federal Government Registration
The Federal Trade Commission (FTC) does not require any type of registration for anyone buying a franchise or the franchisor. The only requirements are around how the buying process takes place.
The franchisor must present you, the franchise buyer, with a franchise disclosure document (FDD). This document will have extensive details about what you can expect when buying the franchise. You must receive this document at least five days before you and the franchisor begin work together. This is to ensure you know what you’re buying before making the investment.
State Licensing
As a franchisee, you do not have to register in your state. Instead, it’s the franchisor who must go through the business licensing process. Currently, there are only 13 states that require a franchisor to register. These states include:
- California
- Hawaii
- Illinois
- Indiana
- Maryland
- Michigan
- Minnesota
- New York
- North Dakota
- Rhode Island
- Virginia
- Washington
- Wisconsin
All this means is that the franchisor has filed the necessary documents with the state. Beyond that, it’s up to you to protect yourself.
In addition, there are also other states, which don't require registration of the FDD, but require the franchisor to file its FDD with the state in order to sell franchises there. These states are:
- Connecticut
- Florida
- Kentucky
- Maine
- Nebraska
- North Carolina
- South Carolina
- South Dakota
- Texas
- Utah
Legal or Regulatory Requirements
Each state requires different licenses. So does each industry. For example, you could need a daycare license if you’re starting an at-home childcare franchise.
One of the ways your franchisor should support you is with legal assistance. This includes guiding you to getting the right licenses to operate your specific franchise. Your franchisor will know what’s required. As you’re starting, they will support you in getting all of the legal requirements in place.
You can also look at the U.S. Small Business Administration website to find out which licenses are needed specifically in your state.
Getting Started
The best way to find out the specific licenses needed in addition to your franchise license is to talk to the franchisor. They have the expertise in your industry and location to ensure you are fully covered to operate your new business.
Susan Guillory is the President of Egg Marketing & Communications, a marketing firm specializing in content writing and social media management. She’s written three business books, including How to Get More Customers With Press Releases, and frequently blogs about small business and marketing on sites including Forbes, AllBusiness, The Marketing Eggspert Blog, and Tweak Your Biz. Follow her on Twitter @eggmarketing.