I click on edit group and click upgrade to squad like it tells me too do then is says 'you already have the maximum number of squads' but i dont have any squads how does that work?

You need to build a Military Academy first. If you don't have it, your maximum Squad number is 0, therefore you are at your current max. Military Academy level 1 lets you have 1 Squad, level 2 is 2 Squads and level 3 lets you create 3 Squads. 

There is also a Premium Shop item, the Mercenary License, which  costs 50 gold and also lets you create an additional Squad - I am however not sure if that would work if you don't even have the basic Military Academy.