You mention having funds to support franchising activity. What amount are you talking about?
The federal requirement is to show potential franchisees that as a franchising company you can support franchise activity. To some extent there is a common sense element to it… if you were looking to purchase a franchise, how comfortable would you be if you saw that the company you are looking to buy from only has $10K in their account??
There is no magic number and it really depends on how your franchise model is structured, however with registration states they are more particular about this point (obviously to prevent failure with franchisees, for franchisee protection and to prevent fraud). State examiners look at the franchise documents to determine how your franchise structure is built and compare that with your obligations to the franchisees prior to them opening for business. Such things may raise red flags. If you are deemed underfunded then a few restrictions may be placed on you and/or denial of your right to sell franchises within that registration state.
Obviously there are some creative ways to minimize such red flags during the creation of your franchise documents and state approval process. This is part of our franchise development program.
