Franchising seems to be such a direct and simple way to expand your business. You’ve got a profitable and sustainable concept, so just enable others to replicate the idea for a fee. You win, they win, and everyone is happy.
Well, any company that has ever tried to franchise has found that there is a great deal of planning and coordination needed to go from zero franchise locations to a nationwide franchise empire. Before anything within your franchise offering is decided or franchise disclosure document is finalized, you have a very important decision to make: “In which states should I offer my franchise?”
Across the United States exists a patchwork of laws governing franchising, and this complex collection is constantly in flux. As a franchise attorney, I can help you determine your initial and long-term franchise expansion goals and devise a plan for complying with the laws in each state.
The two major types of state-based regulations are franchise registration laws and business opportunity laws.
Franchise registration laws: Many states require companies that are franchising to file their Franchise Disclosure Document (“FDD”) at the inception of the franchising program being offered in their state. Some require marketing materials to be submitted before advertising can begin, while others mandate the submission of certain legal documents.
Business opportunity laws: In some states, franchisors must present a prescribed marketing plan, strategy or pre-sale disclosure. The purpose of business opportunity laws is to state the terms of the franchise offering more plainly and succinctly than is represented in the franchise disclosure document.
About 20 states have absolutely no franchise laws or business opportunity laws, while about 10 states have both. Many states also have State Relationship laws that could impact future franchise terminations or non-renewals.
The variety of legal idiosyncrasies throughout the country can present a daunting task to the first-time franchisor, but assistance from a franchise lawyer can help you efficiently clarify your next steps. Many states also require sometimes substantial franchise filing fees, information that may also affect your decision as to where to franchise.
Other factors that might affect where you offer your franchise
If you’re launching your franchise program for the first time, you’ll probably want to grow slowly, so you don’t bite off more than you can chew. A big part of this is being realistic about how far from your base of operations you can venture. As you gain franchisees, you and your team will need to visit their location regularly. Visiting a franchisee who is located across the country or even several states away can cost you time and money in the long run.
You must also consider what states and regions present the strongest potential for your franchisees. Over-excited first-time franchisors often overextend the bounds of their franchise offering, and find more trouble in contracting later. It’s better to start small and regional, and then expand as your program strengthens.
For help in determining where to offer your franchise, writing your franchise disclosure documents, or for any other franchise legal needs, call Harold L. Kestenbaum. I’m a franchise attorney who is willing to listen to your needs and offer you the best advice. Call me today at (516) 745-0099!