6 Telltale Signs of a Franchise Scam
If you’re not careful, you could find yourself a victim of a franchise scam posing as a legitimate business. While you will often find it makes more sense to hire a professional firm to protect yourself, there are some things you should be aware of when looking for a potential business franchise opportunity.
Keep reading to find out how to protect yourself and your finances from franchise fraud.
6 Signs to Look for to Know It’s a Franchise Scam
If you’re looking to purchase a franchise, you need to be aware of the most common risks and how to avoid them.
1. Urgency and High-Pressure Tactics
If the franchisor is using high-pressure sales tactics with an extreme sense of urgency, that can be an obvious red flag. They may claim that you need to commit immediately, or else you will miss out on an opportunity of a lifetime, without providing key details or verifying their figures.
2. No Experience in the Business Being Sold
A common indication a franchise offering could be a scam is that they are selling a franchise in an area they have no expertise or experience in, or where no business infrastructure currently exists. They could be using your investment to test an unproven area or using the claim of venturing into a new area as an excuse for not having a provable record of success.
3. Vague and Confusing Franchise Agreement
Scammers can fleece unsuspecting investors by providing an excessively confusing, oversized, or contradicting franchise agreement. When confronted with a document that may be too difficult or impossible to fully analyze, many prospective franchise buyers fall victim to signing onto agreements they don’t understand or that defraud them.
4. Demanding a Cash Deposit
Scammers often require a cash deposit that is non-refundable as a precondition for providing any franchise agreement. This way, when it becomes clear that the business isn’t legitimate, the scammers can still walk away with your money.
5. Promise of Rapid Huge Profits
You should be skeptical of a get-rich-quick scheme anytime a franchisor is guaranteeing massive profits with little or no business activity.
6. Unclear What Product or Service is Being Sold
Pyramid schemes and fake businesses will often dance around the crucial question of what they are actually selling, and instead, try to divert attention to another aspect of the business.
How to Protect Yourself
Even the savviest business owners can still struggle to verify the legitimacy of a potential franchise prospect. Fortunately, you don’t have to figure it out on your own. There are qualified experts at the Franchise & Business Law Group to identify franchise scams, conduct proper due diligence, and help you capitalize on the best, real offers out there.