Franchise Scams – And How To Avoid Them

Today, there is a wide variety of franchising opportunities in the country and in most cases; these provide a stable base for successful franchising ventures.

When you choose to enter into a proven business system, you are provided support and all the tools needed to grow your business. However, it’s still important to keep in view that running a franchise takes a significant amount of dedication, persistence and hard work.

Potential franchisees need to be prudent while selecting the franchise they are considering to enter. While franchise scams are few and far between, not all companies offer above-board business opportunities. Some unscrupulous people do manage to launch pyramid schemes that are portrayed to be franchise opportunities. These online businesses recruit people and the investors are required to rope in more members without getting any more benefits from the so-called franchisor.

Signs of franchise scams

Here we discuss some of the red flags of these scam franchises:

  • Lack of transparency- A genuine franchisor will always maintain transparency in all their business dealings and at every stage of their interaction with you. These companies will always give prospective franchisors the time to conduct research and do their due diligence before entering into the agreement.
  • No full disclosure- If a franchisor shies from disclosing all the required information properly to you, this should be a red flag as well. As per the Franchising Code of Conduct in Australia, franchisors are required to supply prospective franchisees with a comprehensive disclosure document. If they don’t provide this to you or if they refrain from providing the information you need, they may be hiding something.
  • Franchisor urges you to make a quick decision – If the company pressures you make a very quick decision about entering the franchise, it’s something you should be wary about. A franchisee has to be given a disclosure period of 14 days; the documents can’t be signed within this timespan. In addition, there is a cooling-off period of seven days after you have signed the agreement as well.These mandatory periods are set in place to give franchisees the opportunity to research, obtain advice and make a well-informed decision about whether they should or not be part of that franchise.
  • Everything just sounds too perfect- When entering into any franchise, you need to have very realistic expectations. If a particular network promises you the moon and tells you there is hardly any work or effort involved, this should raise alarm bells in your head. Regardless of the business you venture into, effort and hard work are a given and if someone is telling you otherwise, you need to be wary of them.
  • No business experience- A credible and well-established franchisor will have a good track record and should be able to show that they have proven experience in the industry. The people at the helm of the business need to have extensive experience, proving they have the ability to run it.

Have presence of mind

Keep these red flags in mind while looking out for franchising opportunities and don’t make any hasty decisions. It’s important that you do your due diligence before signing on the dotted line. The recommendation is that you obtain sound legal advice from a franchise lawyer and conduct a certain amount of market research yourself. The better informed you are, the better equipped you will be to embark on this venture and make it a success.

If you want to know anything more about setting up a franchise business or want some sound and professional advice, call The Franchise Institute on 1300 855 435 or fill in this contact us form and we’ll reply as soon as we can.

Thanks for reading,
The Franchise Institute Team
1300 855 435

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