You want to own your own business, and you are considering a franchise as an alternative to starting from scratch. But, is buying a franchise worth it? Or, will the fees consume your profits (and potentially more)? Here are some insights from national franchise attorney Jeffrey M. Goldstein:
What Makes a Franchise Worth the Investment?
Like many prospective franchisees, you want to know: Is a franchise worth it? Theoretically, the main benefits of buying into a franchise system are:
- Brand Recognition – Instead of trying to build your own brand, you can gain immediate recognition among potential customers by relying on the franchisor’s well-established trademarks and trade dress.
- Proven System – The franchisor has developed a business system that works, and it has been proven time and time again by a legion of successful franchisees.
- Franchisor Support – If you have questions or run into issues while operating your business, you can rely on the franchisor’s support team to assist you.
Of course, some franchise systems are better than others; and, while some franchisees succeed, many fail. If you are thinking about buying a franchise, in order to make sure your investment is worth it, you will need to conduct thorough due diligence, assess your chances of success, and hire a franchise lawyer to review (and potentially negotiate) your franchise agreement.
Why Might a Franchise Not Be Worth It?
While buying a franchise can afford a number of benefits under the right circumstances, buying a franchise is also a risky investment. If your franchise is unsuccessful, not only could you lose what you put in, but you could also potentially face liability for “lost future royalties”. If you have unfavorable financing or lease terms, you could face ongoing liability under these obligations as well. Some examples of additional risks associated with buying a franchise include:
- Limited Control – While you may benefit from the franchisor’s system and support, you will also be beholden to the franchisor’s standards. If you want to take your business in a different direction or offer a new product or service, you won’t necessarily be able to do so.
- High Costs – The benefits of the franchise model don’t come cheap. Initial franchise fees, royalties, marketing fund contributions, and other costs can reduce your profit potential substantially.
- Long-Term Commitment – Buying a franchise is a long-term commitment. If your franchise isn’t successful, or if you get to a point where you feel that you have outgrown the franchise system, you will still be subject to the in-term and post-term obligations of your franchise agreement.
With these risks in mind, if you are thinking about buying a franchise, it is imperative that you are moving forward eyes wide open. Gather as much information as you can, ask lots of questions, and seek help from qualified professionals.
Learn More from National Franchise Lawyer Jeffrey M. Goldstein
Jeffrey M. Goldstein is a national franchise lawyer who has been representing prospective franchisees for more than three decades. He offers four tiers of fixed-fee franchise business review programs for prospective franchisees. To learn more, call 202-293-3947 or request a free consultation with Mr. Goldstein online today.
