How to Prevent Franchise Fraud?
Not every business opportunity that sounds good is excellent, especially when it comes to franchising – you have to be extra vigilant. In the UK, many companies have scammed both small and large investors by selling fake franchises. Therefore, before signing the Franchise Agreement, you have to keep your eyes open and focus on the following 10 points to make sure that the franchisor is not trying to fraud you.
1. Make Sure That They Have a Quality Franchise Association Membership:
You have to make sure that you have confirmed that the company is a registered member of the Quality Franchise Association. Buying a franchise UK from a QFA accredited franchise would assure you that the company isn’t a fraud. However, would it assure you that your investment will be secure and the business will not fail? Well, no! For guaranteeing the success of your franchising business, you would have to research about the company and its franchising history thoroughly. You can also take professional help if necessary.
2. Back Out If The Offer Seems Unrealistic:
No matter if they are high cost or low cost franchises, if the Franchisor’s proposal sounds unrealistic, this should be alarming enough for you to back out. No one can make you a millionaire overnight. It takes a few months in rare cases and usually a few years to establish any franchise no matter how lucrative it is. So, do the calculations before you decide to buy any franchise; the Franchisor’s offer should sound realistic, and it should match the success rate of its other franchises.
3. Have A Few Meetings with the Franchisor
There are many new franchises UK that offer a great deal, but when they have a few meetings with the Franchisee, only then the real deal is revealed. It should be your top priority to have a few sessions with the franchisor; it will help you and the franchisor is on the same page.
Make sure that you ask them all the questions that you have in your mind, discuss their success and failures record, and ask their future plans related to franchising. If the franchisor seems hesitant about sharing too many details, tries to cover the failures and have unrealistic future plans – then be alarmed and enquire further to confirm that they are not trying to sell you a fraud.
4. Don’t Feel Under Pressured
Buying a franchise is a big decision, no matter if they are large scale food franchises the UK or a small scale home-based franchises, you will not only be investing your hard earned money, but you will also be dedicating your time and efforts, your name will be at stake; so, that your time! Don’t let anyone, especially the Franchisor or its representatives pressurized to speed up the decision making the process. If you are feeling too under pressure by the Franchisor, this might be a clear indicator of fraud.
5. Limited Time Offers Are Usually a Scam
Franchising is an investment opportunity, not a grocery shopping trip! In good investment opportunities, there are no unrealistic “discount” or “limited time” offers. Making such offers clearly show that the company is not confident about what they are selling, so they are trying to entice you by making such offers. Back out! They might be cooking a swindle.
6. Talk About Your Return on Investment:
A reliable franchisor will not hesitate to talk about what you will get against your investment. Even if it is a small van based franchises investment, you should clearly discuss what you expect in return and inquire about what they are ready to pay. If they are asking for a high fee, but they are not willing to discuss the return is a clear sign of fraud because they are only looking for quick money and they are not interested in building a long and profitable business relationship with you.
Not only in fraud situations but clearly discussing the return on investment before signing the Franchise Contract is essential in every franchising situation.
7. Discuss The Franchise Fees:
What do they expect? And what services will you get against the fees that you will pay? These two questions should be on-paper and discussed between the two parties. Fraud Franchisors take the initial franchising fees from the franchisees and then reveal that no support and training will be offered against the initial fees and the franchisees would have to pay an additional amount for all the other services. Such franchisors are just looking for easy money making opportunity by charging new franchise owners additional “hidden” charges.
8. They Avoid Talking To Legal consultants/Advisors:
Any Fraud franchisor will make sure that they meet you alone. They will try to persuade you that you do not have to bring any legal consultant with you because they either have their Legal Advisor who will help you out, or there is no need of any legal consultants at all because they have mentioned everything very clearly in the contract. So, beware of such scammers! If you can easily afford legal advice, it is always advised to accompany a Legal Advisor to your meetings with the franchisor.
9. Discovery Day Is Essential:
Do not miss the discovery day! It will help you learn a lot about your franchisor and its other Franchisees, and their business history and relationship. If your franchisor is being hesitant to arrange the discovery day before you sign the Franchise Contract, and if in case he/she is trying to convince you to meet the franchisees after signing the Franchise Contract. Run away! An honest franchisor will not only share the complete list of its franchisors, but will also be willing to arrange a discovery day.
10. Beware Of The New Franchisors:
There is no harm in working with new franchisors, until and unless they are honest and you are sure that they are dedicated to expanding their business, and not looking for easy fraud money. However, if they are a new business and are showing unrealistic profit figures and promising idealistic returns. They are a fraud, and you should beware!
