Franchise scams

The well-known companies who franchise their business, are typically solid and honest companies. However, there are some not so well-known companies who franchise that can be unscrupulous, and only in the business of trying to "scam" prospective franchisees out of their money.

Even smart people can get tricked by these franchise scams. Everyday scammers come up with new ways for filling their pockets and emptying yours at the same time. So, how can you learn to notice scammers' tricks before it's too late? Below are some of the tricks beware of that scammers use.

1. “The Bentley Rental Syndrome”

The franchise sales representative is wearing nice clothes and showing off his expensive watch. He is trying his best to make you think that you want to be just like him. Instead of expressing your admiration, ask him to show his company's financial reports, and have them audited by a reputable accountant.

2. “The Hurry-Scurry Effect”

The franchise sales representative will use phrases like, “The half-price offer is good only for today ” or “This offer is only good for today, so you need to make a decision, ” or “Tomorrow will be to late, so you need to make a decision now."

Any reputable franchising company should never try to rush a potential franchisee into making a decision. So, you should be immediately suspicious if the sales person is pressuring you to make a quick decision. Investing in any business is a big decision and should be a rational decision based on facts and not emotion.

3. “The Cash-in-the-Morning, Franchise-in-the-Evening Practice”

The only reason for franchiser to ask their franchisees to make cash payments is the because the impossibility to track the money, and to make it easier for an unscrupulous franchiser to shut down the entire company, in case if something goes wrong for them. You only want to become part of a company's franchising system if they have no problem letting their franchisee's make all payments to the franchiser's bank account. You want to stay away from all franchisers who insist on you making even one cash payment to them.

4. “The Exaggeration Practice”

The franchise sales representative tells you how you will earn huge profits while working only few hours a day. The exaggeration of the income is the common of a franchise scammer. A good business rule to follow is, "If it sounds too good to be true, then it most likely is too good to be true." Also, with any franchiser you are considering going into business with you should always request to speak with as many of their current franchisees as you want, so that you can find out firsthand what kind of profits you can expect to earn. You should be very suspicious of any franchiser who will not let you talk with as many of their current franchisees as you want to talk with, before you invest your money in the franchiser's company.

5. “The slogan: “All the Best Only for You”

The unscrupulous franchising companies will sometimes try to trick potential franchisees by using a third person or third person services company, especially regarding available locations for your potential franchise. In order to get your money as quickly a scamming franchiser, with the help of a third party, will promise you the best locations in your city. They may tell you the best location will not be available tomorrow, so you need to give them a substantial cash payment right then. But, never give a franchiser any money until you personally check all the locations they claim to be available, and you then get in a written contract that your exact franchise location will be the one you personally saw, and that the franchiser's representative had already verbally agreed to. Location is just as important as the franchiser's name when deciding to become a franchisee, so don't ever give the franchiser any cash payment, because then you may find out there are no good locations available in your city.

6. “The slogan: “Thirst is Nothing, Image is Everything”

At the first meeting or within maximum 10 days, the franchiser must provide the any potential franchisee with all the franchise documents required by law. It does not matter how famous the company, this law includes all franchising companies. So, if any franchiser does not comply with this rule, then most likely it is not an honest company.

7. “The Cheap-but-Serious Practice”

If a franchiser's payment terms, royalty percentage, and all other fees they charge franchisees are very small, then you should be suspicious. If they are offering such a great deal, then why wouldn't every second entrepreneur by a franchisee with such a franchiser. "If it sounds too good to be true, then it usually is too good to be true." You should always ask for a complete copy of the franchisee contract, and then have a reputable lawyer read the contract for you. This action is well worth the business expense, so you can avoid most problems before they ever happen.

So, if you believe becoming a Franchisee is the right business for you, and you want the benefits you get from buying into an existing successful company who Franchises, then please contact us and we will help you on your way to becoming a successful entrepreneur.