Franchises can be an amazing career and investment opportunity, but they can also be a huge risk. With so many franchise scams out there, it’s important to know how to spot them and avoid them. Allow us to give you some basic tips on how to navigate this confusing process.
Basic Tips on Avoiding a Franchise Scam
Research! Read! Reflect! (Check out our post on The Three R’s)
Write everything down. Who you talked to, when, where, and what was said. The more details are the better.
Get as much information in writing as you can. Back up any oral promises, guarantees, or projections with an email asking for confirmation
Ask Questions! LOTS OF THEM! The more the better. You should know the ins and outs of the entire franchise.
Here’s a good thing to keep in mind when considering buying a franchise: P.R.E.S.S. A successful franchise will provide you with:
Like any other business, purchasing a franchise is a risk. You should never believe a guarantee of success. The option to fail will always be there. The true purpose of franchising is to reduce that risk by providing P.R.E.S.S. to help you succeed with them. Remember, when you buy a franchise, you are buying into a “family.” All the other franchisees are like brothers and sisters. Their success is important to yours. The franchisor is the parent there to guide you all towards success.
Do you get the feeling that the Franchisor cares about your success as much as their own? If you are getting more of a “pushy car salesman” vibe, you should definitely be on the look-out for other signs that this franchise could be a scam.
Franchisor is reluctant to put things is writing
Receiving conflicting information from different employees within the company
High turnover rate – are employees and franchisees coming and going quickly?
Consistent complaints from current/former franchisees (More information on how to find these in our Three R’s of Purchasing a Franchise post)
Past lawsuits – many franchises will claim they have no lawsuits against them, but that could be for their specific location, not the entire franchise. Do some research to see if they have done any name changes or any other franchise locations have been involved in any lawsuits.
When in doubt, do more research and talk with others. Talk the opportunity over with friends and family and contact current franchisees to see how their business is going. If you still aren’t sure, have an attorney who is experienced in Franchise Law look over the Franchise Disclosure Document for you. You can never have too much information. Do your homework and don’t get caught up in a scam!