How to Start a Franchise Business

Understand What the FTC's Franchise Rule Requires

The Federal Trade Commission's Franchise Rule requires a franchisor to give every prospective franchisee a disclosure document, commonly called a Franchise Disclosure Document (FDD), before any binding franchise agreement is signed or any payment is made. The rule exists specifically so a prospective franchisee can evaluate the opportunity with real information, rather than relying only on what the franchisor's sales materials say.

Review the Disclosure Document Thoroughly

The FDD covers required categories of information about the franchisor, including its business experience, litigation and bankruptcy history, the fees and total investment required, any territory restrictions, trademark and proprietary information rights, financial statements, and the terms of the franchise agreement itself. Read every section, not just the fee and investment figures, since the litigation history and the actual contract terms often matter just as much to whether the opportunity fits your plans.

Use the 14-Day Waiting Period

Per the FTC's Franchise Rule, the franchisor must furnish the disclosure document at least 14 calendar days before you sign a binding agreement or make any payment to the franchisor or an affiliate. This waiting period exists specifically to give you time to review the document, verify the franchisor's claims, and consult an attorney or accountant before committing, not simply to delay the paperwork.

Watch for a Materially Changed Final Agreement

If the franchisor later provides a completed agreement, with your specific territory or terms filled in, that differs materially from what the FDD described, the FTC's rule requires giving you at least 7 calendar days to review that final version before you sign it. This protects against a bait-and-switch where the final contract differs meaningfully from what the disclosure document led you to expect.

Verify Claims Independently

The FDD requires certain disclosures, but it doesn't verify every claim a franchisor's sales representatives make informally. Contact current and former franchisees listed in the disclosure document directly, and consider having an accountant review the franchisor's financial statements and any earnings claims, before relying on them.

Register the Resulting Business Like Any Other

Once you sign the franchise agreement, the business you actually operate still needs to be formed and registered the normal way: choosing a structure, filing with the state, getting an EIN, and obtaining any required local licenses. See our guides on how to choose a business structure and how to register a new business for those steps, which apply to a franchised location the same way they apply to an independent one.

A Disclosure Document Is Not a Guarantee of Success

The FTC requires franchisors to disclose specific information; it does not review or guarantee the quality or profitability of any franchise opportunity. Treat the FDD as a tool for your own evaluation, not an endorsement from the government.

Some States Add Their Own Registration Requirements

Beyond the federal Franchise Rule, a number of states separately require franchisors to register their offering with a state agency before selling franchises there. Check whether your state has its own franchise registration or disclosure requirements in addition to the federal rule.

Get the FDD and Agreement Reviewed by Your Own Advisors

Because the franchise agreement, not just the disclosure document, is what you're legally bound by, have an attorney experienced in franchise law review the actual contract terms, and an accountant review the financial disclosures and any earnings claims, before the 14-day period runs out.

Talk to Current and Former Franchisees

The FDD is generally required to list current and some former franchisees' contact information. Reaching out to them directly, especially former franchisees who left the system, often surfaces practical realities that the disclosure document itself doesn't capture.

This Is Not Legal or Financial Advice

Which disclosures apply, and whether a specific franchise opportunity and its state registration are in order, depend on the franchisor and your state. Talk to an attorney and an accountant before signing any franchise agreement or making any payment.