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How to Avoid Franchise Fraud

Franchising offers a chance to be associated with an established brand and just like any business venture, buying a franchise takes a serious amount of consideration. When you do, be wary to avoid franchise fraud.  


As a possible future franchisee, it is quite exciting knowing you’re only few steps away from owning your business. Expect to encounter some challenges, but if there is one thing you want to be very careful about, that is falling prey to franchise frauds.


Franchise fraud is a misleading transaction used to attract potential franchisees into purchasing a false business and stealing their initial investment.


It’s a situation you don’t want to get caught in so. To avoid franchise fraud, here are some things you need to watch out to safeguard yourself and your investment against potential fraudulent acts:

  • Over-dressed salesman attempting to pitch a quick deal

Some franchises appear to be reputable and professional on the surface but are hiding tricky offers to lure unsuspecting buyers into their scheme. If the seller keeps on persuading you to invest as quickly as possible, consider it is a telltale sign. Be extra careful with sales pitch that are too good to be true. It could well be franchise fraud.

 

  • Cash basis transactions

 

Most potential investors transact through bank accounts.  If the franchise you are dealing with allows cash basis transaction only, get suspicious and do your due diligence to avoid getting scammed.

 

  • Overstated or unrealistic profit

 

Guaranteeing a certain amount of profit in no time is just too good to be true.  Franchising will not give you overnight success, it requires hardwork and time. There is no such thing as “buy a franchise today and start earning tomorrow”. Be cautious of unrealistic promises and avoid franchise fraud.

 

  • Failure to provide full disclosure of information

 

Every franchise company is required to comply with the Franchising Code of Conduct’s disclosure requirements. As a prospective franchisee, you have the right to have full disclosure of this information. If the seller is unable to provide those, take a step back and review the situation before it’s too late.

 

  • Unusually high franchise fee

 

Franchisees will be required to pay an initial franchise fee when closing the deal with the franchisor. This will go to your franchisor to cover the cost of the operation but if they require an unusually high amount, it might be a smart move to think it over. The amount should be justifiable enough considering the training and support that you will get from the franchise. Otherwise, you have to raise the concern immediately.

 

  • Due diligence

 

It won’t hurt to do a background check of the franchise before sealing the deal. The franchisor may provide you information about their company, but make sure to verify everything first. Check their credibility, sales, branding and the profile of the whole company especially if it is new in the industry. You can use the internet, ask around or better yet seek professional advice from a franchising experts or lawyers.

 

Nothing in franchising comes easy even it seems easier than setting up your own business. It has its own benefits and to make sure your hard earned money won’t go to waste, take extra precautions when dealing with your prospect franchisor. Your best defence against fraud is to take your time and be vigilant.

 

Ready to own your own business? Find your perfect business match at  www.lookingforafranchise.com.au.

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