Franchises come in all shapes and sizes. While some franchises require franchisees to invest in a retail location and hire multiple employees, others allow franchisees to act as owner-operators. These franchisees not only manage their businesses, but they also run their businesses on the ground. Known as owner-operators, these franchisees do almost everything on their own—from ordering and managing inventory and supplies to conducting sales and providing services to customers.
In a recent article, the Franchise Times writes that owner-operator franchises are getting a “pandemic boost.” The article cites the transformational nature of the COVID-19 pandemic combined with the financial struggles faced by many over the past year as the primary driver behind this trend. As owner-operator franchises typically have low barriers to entry, they are often attractive options for people who are either looking for a new start or need a way to replace their income following the loss of a job.
Are you considering an owner-operator franchise in 2021? If so, here are five important factors to consider from national franchise attorney Jeffrey M. Goldstein:
1. Buying a Franchise is Very Different from Starting a New Job
While the Franchise Times article notes that many people pursue an owner-operator franchise as an alternative to seeking employment, buying a franchise is very different from starting a new job. You won’t necessarily earn an income right away, and the amount you earn will be directly related to your ability to succeed within the franchise system.
2. There is No Guarantee You Will Succeed as a Franchisee
Buying a franchise is not a guarantee of success. While buying into an established, well-known and well-managed franchise system offers certain advantages over starting an independent business, it will still be up to you to generate a steady stream of income.
3. Buying a Franchise is Not a Short-Term Solution to Financial Strain
Franchise agreements typically involve two to five-year commitments. As a result, buying a franchise is not a short-term solution or something to pursue “between jobs.”
4. You Could End Up Owing “Lost Future Royalties”
If your owner-operator franchise isn’t successful, or if you decide that you no longer want to operate your franchise, you could end up owing “lost future royalties” (in addition to losing your initial investment). These are essentially the royalties you would have paid if you continued to operate as a successful franchisee.
5. You Need to Understand the Terms of the FDD and Franchise Agreement
Before buying a franchise, you need to be sure that you clearly understand the terms of the Franchise Disclosure Document (FDD) and franchise agreement. These are complex legal documents that you should have reviewed by an experienced franchise attorney.
If none of these considerations deter you, then you may be a good candidate for an owner-operator franchise. To get started, choose one of our fixed-fee franchise business review programs.
Talk to National Franchise Attorney Jeffrey M. Goldstein for Free
Are you thinking about buying an owner-operator franchise? To learn more about the risks involved and to choose the fixed-fee franchise business review program that is right for you, call 202-293-3947 or request a free consultation online today.
