4 Potential Issues With Buying A Franchise

21 January 2016
 Categories: Law, Blog

One of the decisions you have to make when starting a business is whether or not you want to buy a franchise. Buying into an already established brand sounds like a good idea to many, but for some potential owners, it might not be the best move. If you are thinking of buying a franchise, here are some factors to consider.

The Cost

Before you can open a franchise, you might be required to pay several fees. In addition to the initial fee associated with buying the franchise, you also have to purchase inventory and equipment. Depending on how much you have to invest in the franchise, it could take a considerable time before you start to see profits.

Limited Legal Options

In the event that you have a disagreement with the franchisor, your legal options can sometimes be severely limited by the contract that you sign. Some agreements require you to give up certain rights, including the ability to take your case to court if there is a dispute. As a result, you could be left at the mercy of the franchisor to settle matters.

The Franchisor's Standards

When you operate a franchise, you must conform to the standards that are set by the franchisor. For instance, if the franchisor requires that all franchise employees wear a certain uniform, every employee in your business must wear it.

Any changes that you want to make in your franchise will require approval from the franchisor. As a result, your independence is severely limited.

Restricted Future Options

Depending on the contract you sign, it is possible that future plans you have could be limited. For instance, if you purchase a clothing franchise and decide you want to open your own clothing store featuring different brands, your contract could possibly restrict you from doing so. This is to prevent competition from encroaching on the franchisor's business. If there is such a clause in your contract with the franchisor, the number of years you are prevented from opening your own business should be clearly stated.

There are many other reasons you should carefully consider whether or not opening a franchise is the right move for you. Consult with an attorney well versed in business law to learn if there are other restrictions of which you should be aware. Your attorney can help you understand the contracts and negotiate on your behalf with the franchisor if you want to make modifications to the agreement.