Following a discussion with a friend last week, I'm touching upon this subject again.
Many newbie authors are convinced that having a contract with a publisher, any publisher, is better than no contract at all. And after you've received a few rejections from literary agents ("Dear Author, please don't take this personally. We receive 10,000 queries a week, and only proceed with one or two"), and realized how tough the competition is within the Big Pub, someone's wishing to snag your book may be very soothing for your wounded self-esteem, and you may be tempted to close with the first offer that comes your way, thinking, "at least it's better than nothing".
However, a bad publishing contract - one that exploits the author, or is signed with a disreputable publisher - is far, far worse than nothing.
Always read your publishing contract carefully, and make sure you understand every clause before you sign. Beware of anything that limits your writing and publishing freedom for a time, such as the warning against so-called "competing titles". It may mean just the sequels/prequels of a series, or it may mean a whole genre - and if you write within one genre, like many authors do, this essentially means that you can't do anything independently of your publisher for a year, or however long your contract stipulates.
Another thing that is important to understand is, the way digital publishing opened the floodgates of the book world so that anyone can call themselves an author, similarly anyone can call themselves a publisher. No credentials are needed for that. Technically, I can set up a website for myself tomorrow, call myself a publisher, lure people into exclusive contracts snatching away their book rights, and then upload said books on Amazon, with a cover I made myself on Canva. Now, I'm not going to do that, because I realize I don't know near enough about the industry, nor have any connections that would enable me to dip my feet into the publishing industry, but not everyone is so scrupulous.
I have encountered several instances of authors who would have been much, much better off as indies than under their publishing contracts. Authors whose publishers put absolutely no effort into editing, cover design or promotion, and release books with embarrassing mistakes and crappy covers. Authors who can't get sales reports from their publisher (in years!) no matter how many times they ask. Authors who find themselves with all their book rights taken away, and nothing gained in return.
It isn't always a question of a publisher deliberately being a crook. Sometimes people jump into this business with the best intentions and, without being aware of it, make their first clients into guinea pigs. I have dodged one such offer a while back. For more information, read my post Publishing Pitfalls.
Small presses aren't always a no-no. I am working with Mason Marshall Press on my Wild Children series, and am happy with their professionalism, dedication and integrity. It is also very likely I get a lot more personal attention than I would have with a bigger company. But then, I had known my publisher by reputation before signing up. I knew that, however much of a success or failure my book would be, I would never be cheated, and I trusted he wouldn't flake out and go out of business tomorrow, leaving me in the lurch.
In short, before you sign with a small, little-known publisher, check out the following:
1. Who is running the business, and what credentials do these people have? How long have they been in business?
2. What books have they published, and how well have they done? Do the covers and blurbs look professional? How many reviews are on the books, and how do they rank?
3. Realistically, what will this publisher do for me that I cannot do for myself, in terms of book production and promotion? Does this offset my giving up 85% of book royalties to them?
4. Do a thorough internet search. Are there any negative reports of authors about this publisher? Any stories that sound dodgy? If there are, don't risk it, just run for the hills.
5. What sort of contract are they offering me? Is it something I might struggle getting out of if the publisher flukes? Does it limit my freedom in other venues I might pursue as an author?
Don't be dazzled by the words "publishing deal", and don't be in a hurry to sign away your rights, because it won't be so easy getting them back. Being an indie - carrying all responsibility, but also reaping all the profits - is much better than depending on the goodwill of an unprofessional, untrustworthy publisher.