Pros and Cons of Buying a Small Business Franchise

small business franchise

Considering whether to buy a franchise so you can operate your own small business is a big decision. There are tremendous benefits to working for yourself and being able to provide jobs for others. However, there are significant obstacles you may want to investigate before signing a franchise contract.

Starting a company from scratch can be overwhelming, so franchises that offer turnkey setups let you avoid many pitfalls. Let’s examine some of the pros and cons of buying a small business franchise and when you may need advice from an experienced Houston franchise attorney.

Why People Choose to Purchase a Franchise

Large corporations, such as McDonald’s or Ace Hardware, will sell franchise licensing and support to those who want to invest time and money in managing a new location for success. You benefit from their brand name and infrastructure, and they benefit from having a dedicated owner who will work hard to see the business thrive.

Instead of facing the mountain of tasks involved in building a new company, such as market research, location scouting, branding, and product development, you can sign a contract, pay the fees, and like magic, you’ve got a company that’s virtually guaranteed to do well.

The most critical part of this path is ensuring the franchise agreement provides what you need. You must be sure you are comfortable with the terms and that you’re not being treated unfairly (or illegally). Before signing anything, it’s wise to ask a trusted legal advisor to review the materials and verify the contract.

Franchise Contracts Are Legally Binding, and Corporations Will Back Them Up

When you’re happy with the contract, you should take a moment to think long-term. Will it still work for you in five, ten, or twenty years? Are you committed to a learning curve before you see the returns you expect? Breaking or failing to meet the terms of your franchise contract will be met with swift legal action from your parent company.

If you become involved in a dispute over contract terms or unmet expectations, resulting in litigation or a lawsuit, you’ll need legal representation to avoid losing your business. A skilled commercial litigation attorney can help you salvage your dreams.

Pros of Buying a Small Business Franchise

There are a number of reasons in favor of making this move in your life. Some of the most beneficial ones include:

  • Brand recognition: You don’t have to build a brand since your franchise comes with a corporate team who has spent years, sometimes decades, making their company a household name. Consistency from brands like Starbucks or 7-Eleven means a guaranteed customer base.
  • Corporate partnerships: Instead of fighting to get approval to sell big-name or licensed merchandise, you benefit from the parent company’s connections. For instance, owning a Pets Supplies Plus store allows you to sell high-end pet foods without negotiating a separate contract.
  • Corporate support: As a franchisee, you’ll get education and assistance for running your business. You will have access to a support team to ensure everything goes smoothly.
  • Fresh employment opportunity: If your chosen career has stagnated or you lose your job, you can start a new line of business without going back to school. Your parent company will supply everything you need, including training, so that you can get started quickly and be successful.
  • Proven business model: Franchise corporations have built a pre-packaged and tested model that works every time. They’ll customize their approach for your market and ensure you succeed. You can learn from other franchisees and improve your skills, all with a safety net.
  • Reduced risk: The Bureau of Labor Statistics reports that as many as 20% of new businesses fail in the first year, and 45% don’t make it to five years. Your risk of closing is substantially reduced when you purchase a franchise instead of building from the ground up.

Cons of Investing in a Small Business Franchise

Along with all the positives, you should closely review the potential downsides to purchasing a small business franchise. Some hazards include:

  • High franchise fees: The Federal Trade Commission requires franchisors to charge an initial franchise fee for the right to use the company name for a specified time frame. It also pays for the guidance and support you receive. These fees can average $35,000 or more.
  • Limited creative control: The proven business model may be new to you, and if you like trying new ways to bring in customers, you might struggle against sticking to a standard menu or product offering.
  • Restricted territory: Your location will serve a specific market, and you could have problems if you break those rules. To expand, you’ll need to purchase another franchise location, but it’s possible to sign a multi-franchise deal when you first start.
  • Reviews and press: Staying on top of laws and regulations to keep your business safe and clean will be critical. Bad reviews put a negative light on you and the parent company. Likewise, if the main corporation gets into hot water, your business may suffer by association.
  • Royalty payments: These additional periodic payments average between 4% and 12%, but they are used to pay for your support programs and education.

Learn More About Investing in a Small Business Franchise from Feldman & Feldman

Becoming an entrepreneur is exciting, no matter what path you choose. It can also be complicated, confusing, and legally risky. The details of contract negotiations and business disputes can add to your concerns if you try to take things on alone. Instead of putting more burden on your shoulders, turn to the experienced Houston franchise attorneys at Feldman & Feldman.

Our experienced legal team listens to your story and needs, tailoring an approach focused on achieving the best possible outcome for your goals. We can help you at all stages of the franchise process, including your initial purchase and day-to-day operations. Having a trusted legal advisor on your side means you don’t have to worry when problems arise.

We are committed to seeing you succeed and strengthening the Houston business community. For help with buying a small business franchise, contact us at Feldman & Feldman today.