If you are looking for information about buying a franchise online, you will find plenty of articles about the advantages of franchise ownership. But, you likely won’t find much about the disadvantages of buying a franchise. So, what are these disadvantages? Here is an overview of what prospective franchisees need to know.
5 Disadvantages of Franchise Ownership
1. One-Sided Franchise Agreement
As a franchisee, you will be bound by the terms of your franchise agreement. The franchise agreement will have been written by the franchisor’s lawyers, and this means that it will be heavily one-sided in the franchisor’s favor. From opening for business to terminating your franchise and everything in between, all aspects of your franchise will be subject to rules and restrictions, and these rules and restrictions will present risks on a daily basis.
2. Restrictions On Your Ability to Grow Your Business
Not only will the rules and restrictions in your franchise agreement present risks (i.e., the risk of early termination and liability for “lost future royalties”), but they will also limit your ability to grow your business. You will have to restrict your operations to your designated territory (if you have a territory); and if you have business ideas that do not align with the franchisor’s system standards, you will most likely have to shelve these ideas and keep operating in strict accordance with the franchisor’s Operations Manual.
3. Mandatory Purchases and “Upgrades”
Many franchisors impose mandatory purchasing obligations. As a result, you could end up being forced to buy inventory that you don’t need (and that doesn’t sell well in your particular market). Additionally, if your franchisor makes “upgrades” to the franchise system, you will be forced to comply at your expense—even if you don’t think they are the best idea for your business, and even if this means making a capital investment that puts you even further into debt.
4. Risk of Encroachment
Even if you have a territory, you will still need to deal with the risk of encroachment. Oftentimes, franchisors reserve the right to open company-owned locations and sell online in their franchisees’ territories, and sometimes, they grant overlapping territories in violation of their existing franchisees’ contractual rights.
5. Risk of Termination
Finally, as a franchisee, failing to comply with your franchise agreement could lead to the termination of your franchise. This is a risk that doesn’t exist for independent business owners. If your franchise fails, not only could you be out of business, but you could be liable for unpaid future financial obligations as well.
While these are five of the biggest disadvantages of franchise ownership, they are by no means the only risks involved. If you are thinking about becoming a franchise owner, you need to ensure that you make an informed decision, and this starts with hiring an experienced franchise attorney to advise you.
Discuss Your Franchise Opportunity with Attorney Jeffrey M. Goldstein
If you are considering a franchise purchase, we encourage you to contact us for more information. To inquire about our fixed-fee Franchise Business Reviews for prospective franchisees, please call 202-293-3947 or request a free initial consultation online today.
