Buying a franchise from a well known brand may appear to be a cooperative and low risk investment. However, when personal savings and borrowed funds are involved, franchisees must take active steps to protect their interests from the start.
Franchisors and franchisees often have different financial priorities. Franchisors typically focus on gross revenue because royalties are usually based on top line sales. Franchisees, on the other hand, are concerned with profitability and cash flow.
This difference can create tension. For example, a franchisor may promote discounted pricing or mandatory promotions intended to increase sales volume. While this may increase gross revenue, it can reduce margins for franchisees. These strategies do not always result in higher profits at the franchisee level.
Experienced business attorneys who represent franchise owners often see the same pattern. Successful franchisees usually obtain legal advice before signing, negotiate carefully, research the business model thoroughly, and ask difficult questions early. A franchise should never be purchased based solely on brand recognition or personal preference for the product.
Below are key tips commonly shared by franchise attorneys in Austin, Texas.
Think Long Term During Negotiations
Many franchisees assume that as long as performance standards are met, they can operate indefinitely. In reality, franchise agreements are for a fixed term. Renewal is often discretionary and may come with less favorable terms. It is important to understand renewal rights and limitations before signing the agreement.
Prepare for a Future Sale
Many franchise owners eventually plan to sell. Some franchise agreements give the franchisor a right of first refusal, meaning the franchisor can match any purchase offer. This provision can reduce market interest and sale value. A Texas franchise attorney can review whether this clause can be limited or negotiated.
Have a Clear Exit Strategy
Not all franchises succeed. Some agreements restrict a franchisee’s ability to sell or close the business. In certain cases, closing early may expose the franchisee to ongoing royalty obligations. An experienced attorney can help negotiate early termination rights before problems arise, which may reduce future financial risk.
Protect Your Territory
Franchisees may face competition from the same brand if territorial protections are weak or undefined. This can include physical locations or online sales that affect local customers. A knowledgeable Austin business attorney can help negotiate clearer territorial protections to reduce internal competition.
Build a Support Network
Texas does not have franchise laws that strongly favor franchisees, and franchise agreements continue to evolve. Many franchisees benefit from joining professional associations or dealer groups that provide shared resources and collective advocacy. Franchise attorneys often recommend these groups as part of a long term business strategy.
At the Lawyer Referral Service of Central Texas, we help connect business owners with experienced franchise and business attorneys in Austin and throughout Central Texas. Having the right legal guidance early can make a significant difference in protecting your investment and planning for the future.
