Franchise Scam

As if franchising wasn’t complicated enough for newbies, you also have to beware of the (small) risk of a scam. Fortunately, the Federal Trade Commission (FTC) has steps in place to help protect you.

Working with a franchise business lawyer also is critical, since these experts will be in your corner and can tell you if a franchise opportunity is legit.

Many investors — some of them savvy — have lost money by investing in so-called opportunities without getting full disclosure. Full disclosure is absolutely critical, because otherwise you have no idea what the company might be hiding; they may be on the verge of bankruptcy or other unhealthy financial conditions.

Legally, without a full disclosure agreement, a company can hide their financial health and encourage you to overestimate how much you can earn by buying into their franchise.

In Good Financial Health

According to the FTC, one of the most common scams takes place in medical billing.

Patients are seeing doctors more often, so it makes sense that doctors and medical facilities need some help processing the paperwork. This has led to an increase in medical billing franchises that aren’t nearly as successful as you might imagine.

In fact, the majority of medical billing franchises fail, according to the FTC.

For starters, it’s tough to find clients. To get medical billing clients, you’ll probably need to cold call and/or spend thousands in specific direct-mail marketing campaigns. However, doctors and medical staff are already overworked and in no mood for a sales pitch. It’s nearly impossible to get them to change medical billers, even if you really do offer more options, better service or a more competitive rate.

Plus, the competition is unbelievable, so doctors have heard all of these marketing promises before.

Scam, or Just a Bad Idea?

Some franchise opportunities are just bad investments. Others simply don’t mesh with your skills and background. That’s why so many of the biggest, most desirable franchises require you to have specific experience with that company — whether it was working previously as a manager, server, retail associate or in the stockroom.

A legitimate franchise wants you to know what you’re getting into, and prefers it if you already have some niche skills.

Some people make the mistake of picking out a franchise because it sounds fun, easy or they like the brand. However, there’s a world of difference between being a customer and owning a franchise. Some of your skills may be transferrable, but nothing makes up for real experience with the franchise — or at least experience in a similar company within the same industry.

If you’re not sure whether an opportunity is a scam, check with a reputable franchise lawyer (and trust your gut). You know what they say about something that seems too good to be true, and you don’t want to waste time, money or effort on a dud.

Contact The Franchise & Business Law Group and connect with reputable experts.