Buying a US Franchise: Check What You Can Sell

A familiar brand may attract customers, but it does not give you freedom to sell whatever those customers request. Within the US franchising community, consistency often depends on tightly controlled products and services. Before buying, establish exactly what you may sell, what you must offer and whether the brand’s approval process leaves room for your business plan.

Start with FDD Item 16 and the agreement

The Federal Trade Commission’s Franchise Rule, found in 16 CFR Part 436, requires pre-sale disclosure for covered franchise offerings through a Franchise Disclosure Document (FDD). Item 16 addresses restrictions on what the franchisee may sell. This is different from checking where you must buy supplies: it concerns the products and services your business can offer customers.

Read Item 16 alongside the franchise agreement and any relevant schedules. Establish whether you must offer only approved products or services, whether every approved offering is compulsory, and whether the franchisor can change the permitted range. Item 16 also addresses restrictions on customers and the franchisor’s rights to change the types of goods or services authorised.

The FTC Rule is a disclosure requirement, not government approval of the commercial terms. It generally requires delivery of the FDD at least 14 calendar days before you sign a binding agreement with, or make a payment to, the franchisor or an affiliate in connection with the proposed franchise sale.

State franchise sales and relationship laws may add protections. Ask a franchise solicitor familiar with the relevant US state to explain which laws apply; do not assume that disclosure makes every restriction enforceable or commercially acceptable.

Separate permitted, compulsory and prohibited sales

Turn the documents into a practical sales checklist. Use four categories:

• Compulsory: products or services every outlet must offer.
• Optional but approved: offerings you can choose to provide.
• Approval required: additions you cannot introduce without written consent.
• Prohibited: activities or offerings the agreement excludes.

Apply this exercise to the actual business you intend to operate. For a cleaning franchise, for example, establish whether specialist treatments fall within the authorised service range. For a food franchise, check whether locally requested menu variations are permitted. These are questions to investigate, not assumptions about how every brand operates.

Ask about bundles, subscriptions, gift cards and complementary services if they feature in your plans. An approved core product does not necessarily mean you can package or sell it in any format you choose.

Also clarify whether your outlet format has a narrower range than other locations. A small-format outlet may not have the same permissions or requirements as a full-size operation. Request the documents applicable to your proposed franchise, rather than relying on another outlet’s offering.

Test how changes and approvals work

A salesperson’s statement that the brand is flexible is not an approval mechanism. Ask who decides requests, what information you must submit, whether testing is required and whether there is a contractual deadline for a response.

Useful questions include:

• Can approval be limited to a trial period or withdrawn later?
• Who pays for trials, equipment and staff training?
• Can the franchisor require new offerings during the agreement?
• Are notice periods or implementation deadlines specified?
• What happens to stock or equipment when an offering is discontinued?

Request a worked example of how an outlet would seek permission for a local adaptation. Treat that explanation as evidence of the process, not a substitute for enforceable contract wording.

Where your purchase depends on a particular permission, have your solicitor seek a clear written contractual provision before you commit. A verbal assurance may not protect you, especially where the agreement says it contains the entire understanding between the parties.

Build your forecast around authorised sales

Remove unapproved offerings from your base-case forecast. If profitability depends on adding a service later, approval is a dependency, not guaranteed income. Model the business without it and decide whether the investment still makes sense.

Examine compulsory offerings too. Consider stockholding, wastage, specialist equipment, staff competence and the space needed to deliver the full required range. Ask your accountant to test the effect of mandatory additions or discontinued offerings without assuming either will occur.

Finally, identify the contractual consequences of selling something unauthorised. The FTC’s consumer guidance warns that failure to comply with sales restrictions can be grounds for termination. Do not assume you will always receive an opportunity to correct a breach; the agreement and applicable state law matter.

Practical takeaway: Before buying, prepare a written sales-permissions checklist and reconcile it with your forecast. If an essential offering is neither authorised nor contractually secured, do not treat its revenue as part of the deal.