FTC regulations are tough on coaching businesses. Here’s how you can stay compliant.
Sep 15, 2021 3 minute Read
The FTC has been cracking down on online coaching businesses for years with new case studies uploaded to their own blog each week. But coaching businesses are lucrative, especially when it’s the passion of the business owner and in no way, shape, or form is being an online coach illegal.
The problem the Federal Trade Commission (FTC) has for these types of businesses involves the high potential for scams, false advertising, and financial harm to customers. As long as you can stay above these three main issues and show how valid your business is, then you’ll be compliant with the FTC. Here’s how you can do it.
FTC Compliance Requirements for Coaching Businesses
No matter what type of online coaching business or coaching niche you have—life coaching, business coach, relationship coach, wellness coaching, career coaches—you must follow the same rules listed below.
Coaching Certification and Licensing
The coaching industry is highly unregulated, but that’s changing. Some states require certifications to be a coach in your field, other states view your business as online advice and leave the professionalism up to reputation.
If you can, you should absolutely become a licensed or certified coach, even if it’s not required in your particular state. For one, being licensed allows you to sell your coaching services in states that do require it. A wider reach is always a perk for extending who’s in your target audience. The license also helps the FTC see your own business as less risky.
Form Your Business Entity
Speaking of legality, you need to register your business. Sole proprietorship or incorporating as an LLC are easy to do and take less time than other entity registration procedures. It seems a lot of individuals think they can become a life coach without going through the legal hoops because it’s person-to-person coaching. Pick the company type that fits yours best and register it to ensure your coaching business is compliant with the FTC.
As a new coach, you cannot promise results. This is one of the biggest compliance issues with the FTC, which usually takes shape in the form of advertising. For example, if you have a health coaching startup business, you likely want to build up hype and momentum for your service and say things like, “you will lose 10lbs, guaranteed” or “I promise with my 10-week course you’ll be a happier, more confident you!”
Phrases like this are catchy and motivating, but they’re wrong and illegal. You cannot promise that someone will see results. You can only imply great results if a customer sticks to your regime. Here’s where disclosures come in. Have your customers sign a disclosure agreement that makes sure you both are seeing eye-to-eye when it comes to expected results. You also most disclose in your promotional material if you’re not licensed as a healthcare professional, and you 100% cannot make definite claims.
Protect Your IPP
Intellectual property protections (IPP) aren’t exactly part of FTC regulations, but they do factor into compliance. IPP includes registering trademarks, copyrights, and legal rights to your non-tangible properties. It’s a coaching business, so you generally don’t have many physical items, it’s all intellectually based. We’ll get more into why this matters from a payments perspective later, because it is equally important to keep your business running. But even something as small as your domain name or business name should be registered. All of this acts as a symbol of your entrepreneurship and represents your brand and the unique service you provide to your ideal clients.
When you have IPP, you’ve confirmed that what you’re selling is unique, it’s not being used elsewhere, and whatever materials your new clients receive are of value. That’s how it affects compliance: having IPP demonstrates value for your business.
Make Your Customers Sign Contracts
Contracts can be the life or death of your business. As a business owner, making customers sign contracts takes disclosures to the next left. You’re not just informing them of expectations, you’re making them understand exactly what they’re getting into from a legal standpoint.
Contracts should include detailed services provided, termination and refund terms, liability concerns, disclaimers, deadlines, coaching sessions–whether it’s private coaching or group coaching, webinars, and anything else you feel is important. With these binding terms, it will be more difficult for customers to request a refund from their bank (causing chargebacks for you) and the FTC will be hard-pressed to take action against you since everything is outlined and signed.
Keep Your CRM Up to Date
Last but not least, your CRM (Customer Relationship Manager) should be updated with every interaction you make with a customer. You should store interactions, payments, agreements, contracts, and everything else possible. You never know when you need to pull up proof.
What Affects Your Coaching Business Negatively in a Compliance Sense
There are a few pillars of negativity that not only affect your own sales but your compliance status with the FTC. Stay on top of these points and you’ll steer clear of any unwanted legal action.
Reputation is a crucial factor is the success of an online business. Replying to reviewers, especially those who leave negative remarks, is beneficial to your business.
As you can imagine, negative reviews can harm your company tremendously. Those same reviews can be used against you if the FTC gets involved. To maintain FTC compliance for your online coaching business, you need to have a clout team taking care of all reviews. When you respond to a negative review in a meaningful way (e.g., apologizing, offering a discount, providing contact information), it makes your business look more professional. It also makes it look like you have genuine concern that one of your coaching clients didn’t enjoy the service.
Take care of negative testimonials. Your reputation and sales depend on it.
Social Advertising Done Wrong
Social media is a powerful tool with incredible advertising power. The FTC has guidelines for advertising online, social media endorsements, and business posting. They also team up with local law enforcement to monitor online advertising in certain areas. That should give you a clear idea of how important online and social advertising is from a legal perspective. Though each platform has its own audience, they all generally follow the same guidelines from a legal standpoint. LinkedIn, Facebook, Twitter, Instagram–they’re all playing by the same rules.
Not just the FTC, social media platforms have their own compliance standards. Most overlap, but not always. For example, you cannot include endorsements or testimonials in your social media ads. The biggest one is false advertising, of course.
Use social media to your advantage, but always stay truthful to maintain compliance.
Along the same lines as false advertising, making extreme claims about your service will knock you right down into a legal hellhole. One of the most common claims is about the potential earnings of a customer for business coaches. Of course, you want to sell up your service and let potential clients know what’s possible. Making larger-than-life claims of any kind will get you in legal trouble.
Upselling can also be problematic. If you upsell too much or push a higher ticket item when the first client is purchasing a minimum-cost service, it looks bad on your business. Upselling is not illegal, but be aware of what you upsell and how it’s being done in terms of pricing.
Keep your claims at a realistic level and use the extremes for case studies where it only remains as an example of someone’s real success.
Payment Processing Requires Compliance, Too
The next logical step to starting a coaching business is getting credit card payment processing and a business bank account. Payment processors and acquiring banks stay well-informed of FTC cases. Coaching programs are considered high risk, and banks want to avoid as much risk as possible. You’ll equally have to convince them of your compliance status.
As a high-risk merchant, you also have to worry about how customer’s will be able to make payments for your services. 3rd-party services like PayPal and Stripe are popular, but will quickly shut down your shopping cart and payment gateway once they find out you’re a high-risk seller.
The better solution is to apply for a high-risk merchant account. And before that, you should absolutely become PCI-compliant. PCI (payment card industry) compliance is enforced by credit card companies (e.g., Visa, Mastercard, American Express) to help keep transactions secure. Luckily, PCI-compliance is easy. You can do it online in just a couple of steps and you’re set.
When applying for your merchant account, have a clear business model and subscription template/outline for your online courses and everything else you sell. The processor will do some research on your small business, so negative remarks, scam reports, and bad customer testimonials will factor into your approval. But if you’ve followed the guide above, provide a strong business structure, and have stayed clear of false promises, your online coaching business will stay compliant and get approved for processing.
DirectPayNet Specializes in Providing Merchant Accounts for High-Risk Merchants Like Online Coaching
You need a merchant account to process payments online. DirectPayNet can help. Contact us to apply for your account, for more assistance with compliance, and if you have any other questions. Your successful online coaching business is in sight, let us help you reach it.