How to Protect Yourself from Franchise Scams

Through due diligence and expert assistance, you could be well on your way to financial and personal freedom.
By John Walsh Prospect Ease, Inc Buying a franchise offers a relatively cost-effective and smooth entrance into business ownership; separating viable opportunities from snake-oil salesman is the key to a successful venture.
 

Knowing the Good from the Bad

Despite all the "bad apples", there are hundreds of franchise opportunities available, with many completely legitimate offerings among them, including home-based franchises. So how do protect yourself from the scams? The old adage "if it seems too good to be true, it probably is" holds true for franchises as it does with daily consumer transactions. "What a buyer needs to keep an eye out for are companies without a history". In the planning stage, I recommend contacting existing or former franchisees to question them about their experience with the franchise company, as well as ensuring a particular franchise has an experienced executive team, is active in its industry and is affiliated with a franchise organization, such as the International Franchise Association (IFA).
Try: Look to  http://www.franchise.org/ and http://www.franchiseprospector.com/ for additional insight.

Which franchise is right for you?

"When buyers begin looking at companies they often approach it from the perspective of a consumer saying to himself 'what would I buy' or 'what products do I love',". "While these questions are good for selecting a place to take the family for dinner, they are not the best for picking a business to buy. The fact that a consumer may love a product is good for possibly one sale per week, but a business needs much more volume to survive and flourish. "This line of thinking also makes prospective franchisees vulnerable to sales pitches from franchisors who may not have their best interests in mind. While a reputable franchisor will screen candidates to make sure the relationship will be mutually beneficial, a company with bad intentions could use your enthusiasm for the product against you in order to close a deal without focusing on the business and how is will make money (or not)."
Try: Employ the help of a franchise expert who can help you evaluate yourself, the industry, how you fit into it and the best opportunities which are appropriate for your situation. The advisor you choose should teach you about the industry and keep you focused on your needs during the process, so that no one pulls you off track.